India’s customs authorities have accused Kia Motors of tax evasion amounting to millions of dollars.
In a confidential notice issued last April, officials claimed Kia evaded taxes possibly reaching $155 million (£125 million), Reuters reported.
Kia India acknowledged the tax notice, stating it had already submitted a “detailed response supported by comprehensive evidence and documentation.” The notice came from a customs commissioner based in Chennai. Kia declined to provide further information about the ongoing case.
The carmaker operates a large manufacturing plant in Andhra Pradesh and has sold over a million vehicles in India since its entry into the market in 2019.
According to Reuters, the 432-page government notice alleges Kia avoided higher customs duties by importing components for its Carnival model in multiple shipments rather than as a single consignment. Importing items this way reduces the applicable duty significantly.
This case follows a similar $1.4 billion tax notice issued to Skoda Auto Volkswagen India, a subsidiary of the German carmaker Volkswagen. Volkswagen challenged the claim in the Bombay High Court and emphasized it is “availing itself of all legal remedies.”
Experts warn that unresolved tax disputes and slow resolution processes could harm foreign investment. India’s economy, already slowing, has seen foreign direct investment (FDI) drop by half in the past year, according to HSBC Securities.
Tax policy uncertainty is a growing concern among global investors. Dinesh Kanabar, a tax expert and former Deputy CEO of KPMG India, stated that prolonged resolution periods worsen business conditions. “The dispute resolution process can take years, and businesses may face the risk of paying part of the demand upfront,” he said.
Kanabar emphasized the importance of improving ease of business and speeding up tax dispute settlements to boost FDI inflows. India’s recent track record of lengthy litigation has raised concerns among companies.
In the past, major tax disputes have involved international firms like Vodafone and Cairn Energy. Vodafone faced a $2 billion demand related to its 2007 purchase of Hutchison’s Indian unit, which was ultimately resolved in Vodafone’s favor. Similarly, Cairn Energy battled a $1.4 billion retrospective tax demand from 2014. An international tribunal sided with Cairn, and the Indian government settled the case last year.
Kanabar called for increased accountability at tax offices, highlighting the government’s poor success rate in defending tax demands on appeal. Addressing this issue, he said, could encourage more confidence in India’s investment climate.