India accuses Kia of $155 million tax evasion; automaker denies wrongdoing: Report

This marks the latest tariff-related dispute between New Delhi and a foreign carmaker.

Kia, which competes with Hyundai and Maruti Suzuki in India’s auto market, holds a 6% share of the approximately 4-million-unit industry.

Its Seltos and Sonet SUVs rank among the country's best-selling models.

Foreign companies in India often grapple with high taxes and prolonged investigations.

Recently, Volkswagen has also filed a lawsuit against a $1.4 billion back-tax demand, calling it "impossibly enormous."

A confidential notice sent by tax authorities to Kia’s Indian unit in April 2024 alleged tax evasion of Rs 1,350 crore, citing misdeclaration of imported components used in assembling the Carnival minivan.

Kia India, in a statement to Reuters, said it had provided "a detailed response, supported by comprehensive evidence and documentation" and that authorities were still reviewing the case.

The company reiterated its commitment to regulatory compliance and "consistent cooperation" with officials.

India’s finance ministry and customs authorities did not respond to Reuters’ queries.

The government’s 432-page notice stated that tax authorities found Kia was importing the Carnival "car model... in parts or components in separate lots" through different ports, intending to reduce customs duty.

It alleged that the company devised this strategy so that customs officials could not detect the true nature of the imports.

According to two sources, Kia’s case mirrors Volkswagen’s, which was accused of evading the higher 30-35 % tax on "completely knocked down" (CKD) car parts shipped in one lot.

Instead, it allegedly staggered shipments over several days to qualify for the lower 10-15 % duty.

The tax notice cited Kia’s website, which listed the Carnival as a CKD model in India, with 9,887 units sold between 2020 and 2022.

Unlike Volkswagen’s probe, which covered 14 models, Kia’s case focuses solely on the seven-seater Carnival, priced at around $73,500 and among its most expensive offerings in India.

Kia faces potential $310 million liability

If it loses the dispute, Kia could be required to pay up to $310 million, nearly double the alleged tax evasion amount, due to penalties and interest.

The company’s latest corporate filings showed record domestic sales of $4.45 billion in fiscal 2022/23, up 53 % year-on-year, with a net profit of $243 million.

Last week, India cut import duties on fully built high-end motorcycles to 30 %, a move widely seen as an effort to placate US President Donald Trump, who had previously criticised India’s tariffs.

However, fully assembled imported cars still face duties exceeding 100 %.

Kia has deposited Rs 278 crore ($32 million) "under protest" while contesting the tax notice, a government source said, requesting anonymity.

In 2022, authorities searched Kia’s offices and its factory in Andhra Pradesh, questioning executives, including Chief Procurement Officer Lee Sang Hwa and Chief Finance Officer Kiho Yoo.

The tax notice claimed that during the probe, Kia executives "changed their stance and have made efforts to mislead," particularly regarding statements on imports, manufacturing, and taxation.

It accused Kia of importing over 90 % of Carnival’s parts, classifying it as a CKD vehicle, which attracts a higher tax rate.

Sanjay Kumar Agarwal, India’s head of indirect taxes, told Reuters that the law was clear and some automakers were evading CKD duties.

"If they are on the wrong side, then the department will have to issue a notice," he said in an interview on Tuesday.