Indian tax authorities have issued a confidential notice to South Korean automaker Kia Motors, alleging tax evasion totaling as much as $155 million (£125 million), as reported by Reuters in April last year.
Kia India has responded to the tax claim from a customs commissioner in Chennai with a comprehensive defense, supported by detailed evidence and documentation, though no further specifics were provided to the BBC. Queries have been made to the finance ministry for a comment.
Operating a manufacturing plant in Andhra Pradesh, Kia has sold over a million vehicles in India following its establishment in 2019.
According to Reuters, the government's 432-page notice accuses Kia of splitting the importation of Carnival car components into multiple shipments to benefit from lower customs duties.
This incident is reminiscent of last year's tax notice of $1.4 billion issued to Volkswagen's unit, Skoda Auto Volkswagen India, which is being contested in the Bombay High Court.
The prolonged resolution process for tax disputes may deter foreign investment in India, as evidenced by a recent decline in foreign direct investment (FDI). HSBC Securities notes that FDI into India has halved in the past year, partly due to such uncertainties.
Tax expert Dinesh Kanabar cautions that the protracted legal proceedings in India pose risks for companies contesting tax demands, emphasizing the need for expedited dispute resolution mechanisms to restore investor confidence.
A notable instance is the Vodafone tax case, where a lengthy legal battle concluded in favor of the telecom giant. Similarly, Cairn Energy's $1.4 billion dispute with tax authorities ended in a settlement after the company won the case at an international tribunal.
There is a call for greater accountability within tax offices to improve the handling of tax disputes that often linger for years, as highlighted by Mr. Kanabar.