India Says Dropping Volkswagen’s $1.4 Billion Tax Bill Would Be Disastrous
India’s government has warned that cancelling a $1.4 billion tax bill for Volkswagen could have “catastrophic consequences,” according to court documents reported by Reuters. The case, which involves allegations that Volkswagen misclassified car parts to avoid higher import taxes, is being heard in a Mumbai court.
Volkswagen, which operates in India under its Skoda Auto Volkswagen unit, claims that tax officials delayed reviewing its shipments for 12 years, making it impossible to challenge the findings earlier. However, Indian tax authorities argue that Volkswagen caused the delays by withholding crucial information about its imports.
The government fears that if the court sides with Volkswagen, it could set a dangerous precedent, allowing companies to hide information and delay tax investigations. This could weaken India’s ability to enforce tax rules and lead to significant revenue losses.
Volkswagen, a small player in India’s car market, faces a potential $2.8 billion bill, including penalties and interest, if found guilty. The case has raised concerns among foreign investors about lengthy tax disputes in India, despite Prime Minister Narendra Modi’s efforts to simplify regulations and attract global businesses.
The tax authority alleges that Volkswagen imported car parts separately to avoid higher taxes, instead of declaring them as “completely knocked down” (CKD) units, which are taxed at 30%-35%. Auto parts, on the other hand, face lower tariffs of 5%-15%.
The case highlights the challenges foreign companies face in India’s complex tax system and the government’s efforts to ensure compliance. The outcome could have far-reaching implications for both Volkswagen and India’s reputation as an investment destination.
Credit: Reuters for original reporting and details.