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Mercedes Benz India mulls change in production strategy for tax advantage Print E-mail
Written by Subash   
Friday, 18 March 2011
Hyderabad: In order to retain tax levels following the finance ministry's new definition of CBU, Mercedes Benz may change it's production strategy in the country and begin local assembly of engines and gearboxes.

Peter Honegg, Managing Director and CEO of Mercedes-Benz India said that the new definition could result in almost doubling the prices. "At the end of the day, we will have to change our production strategy. We have to bring in engines, gearbox and assemble here," he said.

According to the finance ministry's new definition, all vehicles with imported pre-assembled parts like engines, gear boxes, transmissions or chassis shall be excluded from the list of completely knocked down (CKD) units. So far such vehicles attracted a custom duty of 10 percent.

"We are yet to get full clarity on the impact if the new definition stays," Honegg said. Though it is not likely to significantly impact sales, the company's margins would be substantially affected. Honegg said that engine assembly is a very sophisticated process where special equipment is needed.

Currently the company's domestic component sourcing is around 34 percent.

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