Toyota halts India expansion plans over high vehicle taxes
LEVIES PUT CARS BEYOND REACH OF CONSUMERS, MAKE FACTORIES UNVIABLE
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 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.
While Toyota Kirloskar continues to be committed to India and needs to protect jobs, utilising the capacity it has created “will take time,” the company said in a statement on 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 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 1500cc works out to be as high as 50 per cent.
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 fourthbiggest car market. 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 utilising just about 20 per cent of its capacity in a second plant in India.