Toyota Halts India Growth, Blaming ‘We Don’t Want You’ Taxes
By
Anurag Kotoky
September 14, 2020, 4:00 PM CDT Updated on September 15, 2020, 5:30 AM CDT
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.
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.
“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.
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.
www.bloomberg.com
GM, Ford, and now Toyota have basically halted further investment/expansion plans in India. Supa Powa can never becoming a manufacturing hub even if it wanted to
