India has accused South Korea's Kia of tax evasion totaling $155 million by misclassifying component imports. However, Kia has denied any wrongdoing in the face of these allegations, the most recent in a series of disputes between foreign automakers and New Delhi regarding tariffs. Kia competes with Hyundai and Maruti Suzuki in the world's third-largest auto market, holding a 6% market share of around 4 million units annually, with its Kia Seltos and Sonet SUVs ranking among top sellers.
Foreign companies in India encounter challenges due to high taxes and prolonged investigations. Tesla has openly criticized the steep taxes on imported electric vehicles, while Volkswagen recently filed a lawsuit against a demand for a record $1.4 billion in back taxes.
Tax officials issued a confidential notice to Kia's Indian unit in April 2024, alleging tax evasion amounting to 13.5 billion rupees. The allegation focused on the improper declaration of component imports for the assembly of Kia's luxury Carnival minivan. Kia India has reportedly refuted these claims, stating its compliance with regulations, and affirming cooperation with authorities.
According to a 432-page government notice, tax authorities found Kia's importation strategy for the Carnival model aimed at paying lower customs duties by importing parts separately through different ports. This strategy was purportedly devised to evade detection by customs.
The investigation into Kia's practices mirrors that of Volkswagen, which was accused of evading higher taxes applicable to completely knocked down (CKD) parts by shipping them separately over several days at a reduced tax rate.
If Kia loses the dispute, Indian tax regulations could require the company to pay up to $310 million, including penalties and interest. Kia's Indian sales for the fiscal year 2022/23 reached $4.45 billion, marking a significant increase from the previous year.
In response to the tax notice, Kia has deposited 2.78 billion rupees ($32 million) "under protest" and is actively challenging the Indian authorities’ claims. Despite the ongoing legal proceedings, Kia remains embroiled in the dispute over the imposed taxes.