The government may cut the Customs duty on completely knocked down kits and completely built units of passenger vehicles in the Budget.

This, according to government officials, will rationalise the Customs duty rates on passenger vehicles to Asean levels. The current rate of import duty on CKDs and CBUs is 60 per cent, and for old cars it is 106 per cent.

Though sources in the government said the cut in Customs duty on CBUs and CKDs was likely to be implemented in the Budget, they were not certain on the quantum of the cut.

• Run-up to the Budget 2005-06

Automobile manufacturers, including Honda and Toyota, who have a fairly large presence in this segment of the market, were unwilling to comment at this stage.

Both Honda and Toyota executives said historically, the companies had passed on the benefit of duty cuts to end users and would continue to do so.

While the Honda CRV is imported as a fully built unit, as a result of which a 60 per cent Customs duty is slapped on it, both the Accord and the City have a high level of indigenisation.

A Honda executive said the City had already achieved 70 per cent localisation, and on the balance 30 per cent that was imported as kit, the company paid 20 per cent Customs duty.

Industry sources, however, pointed out the government should exercise some caution while reducing the import duty.

"Exporting to the Asean, say, to Malaysia, will attract duty in excess of 100 per cent. What is discussed as the Asean rate of duty of 5-10 per cent is applicable only to the 10 nations comprising the bloc, which does not benefit exports from India in any way," said a source.

Experts also said that while cuts in customs duty would be welcome, such a move must be reciprocated by countries that benefit from the duty cuts.

Though the total volume of CBU and CKD imports was unavailable, government sources said imports were in excess of Rs 321 crore (Rs 3.21 billion) for passenger cars.