Toyota Motor Corp. won’t expand further in India because of the country’s high tax regime, a blow for Prime Minister Narendra Modi, who’s trying to lure global companies to offset the deep economic malaise brought on by the coronavirus pandemic.
The government assists in keeping taxes on cars and motorbikes so high that companies find it tough to build scale, said Shekar Viswanathan, vice chairman of Toyota’s native unit, Toyota Kirloskar Motor. The high levies also put owning a car out of reach of many consumers, meaning factories are idled and jobs aren’t created, he said.
“The message we are getting, after we have come here and invested money, is that we don’t want you,” Viswanathan said in an interview. In the absence of any reforms, “we won’t exit India, but we won’t scale up.”
Toyota, one of the vital world’s biggest carmakers, began operating in India in 1997. Its native unit is owned 89% by the Japanese company and has a small market share — just 2.6% in August as opposed to nearly 5% a year earlier, Federation of Automobile Dealers Associations data show.
In India, motor vehicles including cars, two-wheelers and sports utility vehicles (even supposing not electric vehicles), attract taxes as high as 28%. On top of that there may also be extra levies, ranging from 1% to as much as 22%, based on a car’s kind, length or engine size. The tax on a four-meter long SUV with an engine capacity of more than 1500 cc works out to be as high as 50%.
Ford, GM Out
The extra levies are usually imposed on what are regarded as to be “luxury” goods. In addition to cars, in India that can include cigarettes and sparkling water.
India is planning to offer incentives worth $23 billion to draw firms to establish manufacturing, people familiar with the matter said final week, including production-linked breaks for automakers. International automakers have struggled to expand on the planet’s fourth-biggest car market.
General Motors Co. quit the country in 2017 while Ford Motor Co. agreed final year to move 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. That effectively ended independent operations in a country Ford had once said it wanted to be one of its top three markets by 2020.
Such punitive taxes discourage foreign investment, erode automakers’ margins and make the price of launching new products “prohibitive,” Viswanathan said.
“You’d think the auto sector is making drugs or liquor,” he said. Toyota, which also has an alliance with Suzuki Motor Corp. to sell some of Suzuki’s compact cars under its own brand, is currently utilizing just approximately 20% of its capacity in a second plant in India.
Automobile sales in India were weathering a slump before the coronavirus pandemic, with a minimum of half a million jobs missing.
Taxes on electric vehicles, currently 5%, will probably also go up once sales increase, Viswanathan said, referring to what he says has change into a sample with successive governments in India.
While discussions are ongoing between ministries for a discount in taxes, there won’t any instant agreement on an actual cut, India’s Heavy Industries Minister Prakash Javadekar said earlier this month.
A finance ministry spokesman didn’t immediately respond to messages seeking remark.
Automobile sales in India were weathering a slump before the coronavirus pandemic, with a minimum of half a million jobs missing. A foyer group has predicted it will take as many as four years for sales to go back to levels seen before the slowdown.
The biggest players are the native units of Suzuki and Hyundai Motor Co., which have cornered the marketplace for compact, affordable cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. have a combined share of nearly 70%.
Toyota in India has in large part pivoted toward hybrid vehicles, which attract taxes of as much as 43% because they aren’t purely electric.
But in a nation where few can even have enough money a car, let alone a more environmentally friendly one, EVs or their hybrid cousins have yet to gain much acceptance. Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make his vehicles unaffordable in India.
“Market India at all times has to precede Factory India, and this is something the politicians and bureaucrats don’t understand,” Viswanathan said. Modi’s much-touted Make in India is another program aimed at attracting foreign companies.
India needs to have demand for a product before asking firms to establish shop, yet “at the slightest signal of a product doing mannered, they slap it with a higher and higher tax rate,” he said.