South Korean automaker Kia Motors finds itself embroiled in a tax dispute with the Indian government, facing accusations of evading $155 million in import duties. The allegations center around the classification of imported components for its luxury Carnival minivan. Kia denies any wrongdoing, setting the stage for a potentially protracted legal battle.

The Indian government alleges that Kia misclassified components imported for the Carnival's assembly, aiming to pay lower customs duties. A confidential notice issued to Kia’s Indian unit in April 2024 by tax authorities details the alleged evasion, claiming the company imported components in separate shipments through different ports to avoid detection and circumvent higher tariffs applicable to completely knocked down (CKD) units imported in a single consignment. The notice states that Kia's strategy was designed to evade customs scrutiny, as reported by the media.

Kia India responded with a statement asserting its compliance with all regulations and its cooperation with authorities. The company claims to have provided a detailed response, backed by evidence and documentation, to substantiate its position. The matter is currently under review by the authorities.

This isn't the first time a foreign automaker has faced such accusations in India. Tesla has publicly criticized the high taxes on imported electric vehicles, and Volkswagen recently faced a similar record demand for back taxes, where the German automaker was accused of similar tactics to avoid higher CKD import duties.

The government's notice indicates that Kia’s website listed the Carnival as being sold in CKD form in India, with over 9,800 units sold between 2020 and 2022. However, authorities claim that Kia imported over 90% of the Carnival's parts, effectively constituting a CKD unit, which attracts a higher duty. The investigation, which involved searches of Kia offices and a factory in Andhra Pradesh in 2022, also saw executives questioned, including the Chief Procurement Officer and Chief Finance Officer.

If Kia is found liable, the financial implications could be substantial. Indian tax rules could require the automaker to pay up to double the evaded amount, potentially reaching $310 million, including penalties and interest. This comes as Kia has seen significant growth in the Indian market, with reported annual sales of $4.45 billion in fiscal year 2022/23 and a net profit of $243 million.

Kia has reportedly deposited $32 million "under protest" while it challenges the tax notice.