Toyota says won’t expand in India, blames high taxes

We won't exit India, but we won't scale up’

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.

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. The country is the fourth-biggest car market in the world but international players have struggled to find a niche in a sector that's dominated by cheap, fossil fuel-led vehicles.

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 for 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 per cent by the Japanese company and has a small market share --just 2.6 per cent in August versus almost 5 per cent a year earlier, Federation of Automobile Dealers Associations data show.

In India, motor vehicles, including cars, two-wheelers and sports utility vehicles, attract taxes as high as 28 per cent. On top of that there can be additional levies, ranging from 1 per cent to as much as 22 per cent, based on a car's type, length or engine size. The tax on a four-metre long SUV with an engine capacity of more than 1500 cc works out to be as high as 50 per cent.

The additional levies are typically imposed on what are considered to be "luxury" goods.

General Motors Co quit the market in 2017 while Ford Motor Co agreed last year to move most of its assets in India into a joint venture with Mahindra &

Mahindra 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 cost of launching new products "proh ib i t ive , "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 utilising just about 20 per cent of its capacity in a second plant in India.

Taxes on electric vehicles, currently 5 per cent, will probably also go up once sales increase, Viswanathan said, referring to what he says has become a pattern with successive governments.

While discussions are ongoing between ministries for a reduction in taxes, there may not any immediate agreement on an actual cut, heavy industries minister Prakash Javadekar said this month.

Automobile sales in India were weathering a slump before the pandemic, with at least half a million jobs lost. A lobby group has predicted it may take four years for sales to return to pre-slowdown levels.

The biggest players are the local units of Suzuki and Hyundai Motor Co., which have cornered the market for compact, affordable cars. Maruti and Hyundai have a combined share of almost 70 per cent.

Toyota in India has largely pivoted toward hybrid vehicles, which attract taxes of as much as 43 per cent because they aren't purely electric.

But in a nation where few can even afford a car, EVs or their hybrid cousins have yet to gain much acceptance. Elon Musk, the founder of Tesla, has said import duties would make his vehicles unaffordable in India.

"Market India always has to precede Factory India, and this is something the politicians and bureaucrats don't understand," he said. 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.—

The message we are getting, after we have come here and invested money, is that we don't want you...You'd think the auto sector is making drugs or liquor” Shekar Viswanathan, vice-chairman, Toyota Kirloskar Motor

Market India always has to precede Factory India, and this is something the politicians and bureaucrats don't understand”