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 toattract firms to set up manufacturing, people familiar with the matter said last week, including production-linked breaks for automakers. The South Asian 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-fueled 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 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.
|For more on India’s auto sector:|
|India’s Auto Boom Goes Bust on the Worst Sales in Decades|
|Slump in Car Sales Shows Pain Persists for Modi’s Economy|
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.
General Motors Co. quit the market in 2017 whileFord 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 effectivelyended 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 withSuzuki 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 anyimmediate 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.
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 takeas many as four years for sales to return to levels seen before the slowdown.
The biggest players are the local units of Suzuki andHyundai 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., hassaid import duties would make his vehicles unaffordable in India.
Replying to @TeslaClubIN and @YashwanthnadalFor 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.7:59 PM · Aug 1, 2019
304 people are Tweeting about this