Chinese automaker BYD is under investigation by the Directorate of Revenue Intelligence (DRI) over allegations of underpaid taxes on imported parts used in assembled cars sold in the country, reports the news agency Reuters. The DRI claims BYD, China’s biggest electric vehicle (EV) maker, has underpaid taxes by $9 million. Although BYD has deposited this amount following preliminary findings, the investigation is ongoing, and additional tax fees and penalties may be imposed. There has been no official response from BYD and the Indian authorities.

BYD’s expansion plan in India is facing a roadblock. BYD’s expansion plans in India have faced challenges amid strained relations between New Delhi and Beijing. The Chinese automaker is currently under intense scrutiny from Indian authorities because of its $1 billion proposal to manufacture cars locally, in line with India’s strict rules on foreign investment from neighbouring countries including China. BYD has told its Indian joint venture partner that it has cancelled its investment plan as it is facing a probe from the authorities.

In recent years, Chinese companies in India have faced increased scrutiny following a border conflict between the two countries in 2020. Smartphone maker Xiaomi Corp has also faced allegations of illegal remittances to foreign entities in the name of royalties. India imposes different tax rates on imported car parts for local assembly in fully-built electric cars and EVs. While fully built electric cars are taxed at 70 per cent or 100 per cent depending on the value of the vehicle, car parts can be taxed at 15 per cent or 35 per cent if they are imported without being mounted on a vehicle chassis. Sources reveal that BYD has not met the conditions required to benefit from the reduced tax rates, which require the automaker to pay 70 per cent or 100 per cent depending on the value of the car.