Which motorcycles may be cheaper?
Popular models of Runner, Hero, TVS, Bajaj, Honda and Suzuki will see lower duty on engines that might translate into around 2% drop in prices, according to industry insiders
To encourage more value addition, the government has decided to reduce customs duty to 3% from 10% for the imported engine parts of up to 250cc motorcycles being manufactured in local plants.
Finance Minister Abul Hassan Mahmood Ali proposed the duty waiver in the budget for FY25 on Thursday.
However, the duty relief will not be applicable to all motorcycle models, despite being manufactured locally, said industry people.
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They said the extent of local value addition would determine the availability of the duty benefit.
According to the latest statutory regulatory order, to enjoy the reduced duty, the up to 250 cc model must be manufactured locally as a Category-1, which means the frame and swing arm must be shaped out of flat or tubular steel and welded locally, unlike Category-2 manufacturing that welds pre-shaped smaller parts to build a frame and swing arm.
Runner, Hero, TVS, Bajaj, Honda and Suzuki are among the Category-1 manufacturers of many popular motorcycle models in the country at present.
However, not all their models are in Category-1. Companies decide the extent of local value addition based on the volume and duty benefits that make their added investment feasible.
The rule of thumb is that the models that sell a lot are subject to maximum value addition in the country. Also, companies dive deeper into local value addition in line with given incentives.
Engines are imported in two forms -- pre-assembled or completely built unit (CBU) engines and completely knocked down (CKD) engines that are assembled locally.
Only CKD engines for an up to 250 cc Category-1 model will be subject to 3% customs duty, while the CBU engines for Category-1 models will remain subject to 10% customs duty. All engines up to 250 cc for Category-2 models will remain subject to 15% customs duty.
On the other hand, CKD engines for above 250 cc Category-1 models will be subject to 10% customs duty, while Category-2 in the higher segment will pay 25% customs duty for engines.
Engines roughly account for one-third of the cost of a commuter motorcycle and the Category-1 manufacturers who assemble imported engines locally may be able to reduce their cost and price by around 2%, unless local currency does not depreciate further, according to industry insiders.
