Bangalore: Toyota Motor Corp. won’t expand further in India due to 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 keeps taxes on cars and motorbikes so high that companies find it hard to build scale, said Shekar Viswanathan, vice chairman of Toyota’s local 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 world’s biggest carmakers, began operating in India in 1997. Its local unit is owned 89% by the Japanese company and has a small market share — just 2.6% in August versus almost 5% a year earlier, Federation of Automobile Dealers Associations data show.
While Toyota Kirloskar continues to be committed to India and needs to protect jobs, utilizing the capacity it has created “will take time,” the company said in a statement Tuesday after the Bloomberg story was published. The unit is “confident” the government will do everything possible to support the industry, which has requested a “viable tax structure,” it said.
In India, motor vehicles including cars, two-wheelers and sports utility vehicles (although not electric vehicles), attract taxes as high as 28%. On top of that there can be additional levies, ranging from 1% to as much as 22%, based on a car’s type, 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 additional levies are typically imposed on what are considered to be “luxury” goods. As well as cars, in India that can include cigarettes and sparkling water.
India is planning to offer incentives worth $23 billion to attract firms to set up manufacturing, people familiar with the matter said last week, including production-linked breaks for automakers. International automakers have struggled to expand in the world’s fourth-biggest car market.
General Motors Co. quit the country in 2017 while Ford Motor Co. agreed last 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.
Also read: With trucks sitting idle, India’s fuel demand set to hit 5-year low in 2020-21
Such punitive taxes discourage foreign investment, erode automakers’ margins and make the cost 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 about 20% of its capacity in a second plant in India.
Taxes on electric vehicles, currently 5%, will probably also go up once sales increase, Viswanathan said, referring to what he says has become a pattern with successive governments in India.
While discussions are ongoing between ministries for a reduction in taxes, there may not any immediate 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 comment.
EV challenge
Automobile sales in India were weathering a slump before the coronavirus pandemic, with at least half a million jobs lost. A lobby group has predicted it may take as many as four years for sales to return to levels seen before the slowdown.
The biggest players are the local units of Suzuki and Hyundai Motor Co., which have cornered the market for compact, affordable cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. have a combined share of almost 70%.
Toyota in India has largely 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 afford 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.
For other countries, we pay in part for the local factory by selling cars there ahead of time. Also, gives a sense of demand. Current rules in India prevent that, but recent changes in sales tax give hope for future changes.
— Elon Musk (@elonmusk) August 1, 2019
“Market India always 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 set up shop, yet “at the slightest sign of a product doing well, they slap it with a higher and higher tax rate,” he said. – Bloomberg
Also read: Demand for trucks, commercial vehicles to take 3 years to return, Daimler India says
Why is this rasgolla guy dragging hindu and hinduism between this, japan follows shintoism which pretty much like hinduism, in fact most of there gods are same as hindu gods but with different names, and yet they have there pride in shintoism and is developed country, the problem here is some foreign forces do not want to see india prosper and so these people hire canines like this ”rasgolla” guy who always bark at our PM Modi, bark at our policies, bark at our culture and everything remotely related to hinduism. Anyways this canines will keep barking it is there duty of course so Mr ”rasgolla” keep barking until President Xi throws u a bone
If you won’t expand, some other company will grab this opportunity. Just see the number of cars on road, there are not enough roads to drive them. You are absolutely wrong if you say that it is difficult to build scale. You need to think out of box instead of just crunching numbers.
How about reducing salaries of government bureaucrats ? Or trimming their workforce. Or reducing their pensions. They might advise ministers to come up with schemes like increase rate of income tax of salaried people so that they can keep their own salaries and perks safe even during such miserable times.
Let them feel the pain of people who work in private sector and informal sectors.
With the conflict in China looking drawn out, I am sure the costs of maintaining the forces are really huge there. I think the bureaucracy and government employees should take a hit.
Well thought and said Sir, I absolutely agree to your point of view, government should also follow
You know seeing all this I feel that my country is falling we are surrounded by 2 nuclear adversaries to the north which have a Communist and Islamist or military ruled government (you know what I mean) and they won’t let us develop peacefully as a democracy and so much for all the other democratic nations and organisations such as European Union and the U.S.A wouldn’t even want to help us to survive and if this is what they want the world’s largest democratic nation falling down then why do they even preach democracy all I am just asking for is help ,if atleast a few foreign companies invest properly in India it would give us hope and also publishing fake news like this makes us lose that hope.
Fake news. Why should we financially support peddlers of fake news?