Toyota Motor Corp. will not grow further in India due to the country’s high tax regime, a blow to Prime Minister Narendra Modi, who is trying to lure global companies to offset the deep economic malaise caused by the coronavirus pandemic.
The government keeps taxes on cars and motorcycles so high that businesses are struggling to grow, said Shekar Viswanathan, vice president of Toyota’s local unit,Toyota Kirloskar engine. The high taxes also put car ownership out of the reach of many consumers, meaning factories are idle and jobs are not being created, he said.
“The message we get, once we come here and invest the money, is that we don’t want you,” Viswanathan said in an interview. In the absence of any reform, “we will not get out of India, but we will not develop”.
Toyota, one of the world’s largest automakers, started operations in India in 1997. Its local unit is 89% owned by the Japanese company and has a small market share – just 2.6% in August up from nearly 5% a year earlier, Federation of Auto Dealer Associations data shows.
In India, motor vehicles, including cars, two-wheelers and sport utility vehicles (but not electric vehicles), benefit from taxes of up to 28%. On top of that, there may be additional levies, ranging from 1% to 22%, depending on the type, length or size of a car’s engine. The tax on a four-meter-long SUV with a displacement of over 1,500 cc is equivalent to 50%.
Ford, GM Exit
The additional levies are generally imposed on what are considered “luxury” goods. As well as cars, in India this can include cigarettes and sparkling water.
India plans to offer $ 23 billion worth of incentivesto inspire companies to get into manufacturing, people familiar with the matter, including production-related breaks for automakers, said last week. International automakers have struggled to expand into the world’s fourth largest auto market.
General Motors Co. left the country in 2017 whenFord Motor Co. agreed last year to transfer most of its assets in India into a joint venture with Mahindra & Mahindra Ltd. after struggling for more than two decades to win over buyers. Who actuallyhas ended its independent activities in one country, Ford had previously said it wants to be one of its top three markets by 2020.
Such punitive taxes discourage foreign investment, erode the margins of automakers and make the cost of launching new products “prohibitive,” Viswanathan said.
“You would think the auto industry manufactures drugs or alcohol,” he says. Toyota, which also has an alliance withSuzuki Motor Corp., which sells some of Suzuki’s compact cars under its own brand, is currently using around 20% of its capacity at a second plant in India.
Electric vehicle taxes, currently 5%, are also likely to increase once sales are increased, Viswanathan said, referring to what he says has become a model with successive governments in India.
While discussions are underway between departments for tax cuts, it may be thatimmediate agreement on an effective reduction, Indian Heavy Industries Minister Prakash Javadekar said earlier this month.
A spokesperson for the Ministry of Finance did not immediately respond to messages seeking comment.
Auto sales in India were going through a crisis before the coronavirus pandemic, with at least half a million jobs lost. A lobby group predicted it could takeno less than four years for sales to return to pre-downturn levels.
The main players are the local Suzuki units andHyundai Motor Co., which has cornered the market for compact and affordable cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. hold a combined share of almost 70%.
Toyota in India has largely turned to hybrid vehicles, which attract up to 43% in taxes because they are not purely electric.
But in a country where few people can even afford a car, let alone a greener car, electric vehicles or their hybrid cousins have yet to gain widespread acceptance. Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make its vehicles unaffordable in India.
“The Indian market must always come before Factory India, and this is something that politicians and bureaucrats don’t understand,” Viswanathan said. Modi is highly touted Make in India is another program aimed at attracting foreign companies.
India needs to have demand for a product before asking companies to set up shop, but “at the slightest sign that a product is doing well, they slap it with a higher and higher tax rate “, did he declare.
– With the help of Shruti Srivastava
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