Volkswagen India accused of evading $1.4 billion in vehicle taxes

Unassembled vehicles imported into India are subject to tariffs of 30-35%, while individual components only pay tariffs of 5-15%

Tax authorities are not happy with Volkswagen’s operations in India, accusing the company of evading $1.4 billion in taxes by improperly declaring auto parts for the Audi, Volkswagen and Skoda brands.

In India, unassembled cars imported into the country are subject to 30-35% customs duties, and Volkswagen allegedly imports unassembled cars, but it only declares these imports as “single components,” meaning it only pays 5-15% tariff. The major vehicles imported by the car manufacturing giant into India include Skoda Superb, Skoda Kodiaq, Volkswagen Tiguan, Audi A4 and Audi Q5.

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Investigators raided three Volkswagen plants in India in 2022 and seized documents from executives. Instead of importing vehicles in completely knock-down (CKD) form, Volkswagen India is said to be ordering cars in bulk from suppliers in countries such as the Czech Republic, Germany and Mexico and using special software to break down these orders into “main Parts and components. Around 700-1,500 parts will be supplied per vehicle, packed abroad and shipped to India using multiple invoices.

The U.S. Customs Commissioner’s Office said Volkswagen India should have paid $2.35 billion in import duties and related taxes since 2012. However, it paid only $981 million. Government authorities have now said Volkswagen must explain and provide reasons why the company should not be subject to fines and interest in addition to unpaid duties.

A government official told Reuters in an interview that penalties in such cases could be up to 100 percent. If this applies to Volkswagen, it could owe the Indian government $2.8 billion. Such a fine would come at a dire time for the German brand, which is looking to cut jobs, cut wages and close European factories as it battles rising costs and falling demand for its cars.

Volkswagen has rejected claims it is trying to limit the tariffs it must pay and told investigators it is using a complex ordering process to “increase operational efficiency.” Further, Skoda Auto Volkswagen India said it is a “responsible organization and fully complies with all global and local laws and regulations. We are analyzing the notification and extending full cooperation to the authorities.”