Toyota halts expansion plans in India, blames high-tax regime

New Delhi: In what can be seen a blow to the Narendra Modi government’s Make in India program, Toyota Motor Corporation revealed that it is unwilling to expand its operations further in India. The company blamed the high-tax regime that is prevalent on cars and motorbikes, that prevents companies to build scale.

“The message we are getting, after we have come here and invested money, is that we don’t want you,” Shekar Viswanathan, vice-chairman of Toyota’s local unit, Toyota Kirloskar Motor quoted to Bloomberg. In the absence of any reforms, he said, “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.

However, Prakash Javadekar, Minister of I&B; Heavy Industries & Public Enterprises, took to Twitter to refute these claims. He wrote, “The news that Toyota Company will stop investing in India is incorrect,” tweeted, tagging Vikram Kirloskar, who is also the vice-chairperson of Toyota Kirloskar Motor. “Kirloskar has clarified that Toyota will invest more than Rs 2000 crore in the next 12 months.”

Kirloskar further clarified that the company is investing Rs. 2000 crore towards electrification of vehicles and added, ‘We are seeing the demand increase and the market recover slowly.’ In an interview to a television channel, he also said that ‘government reforms will help us recover in the long-run.’

Incompatible to international automakers

In India, motor vehicles including cars, two-wheelers and sports utility vehicles attract taxes as high as 28 per cent. Besides this, the government imposes additional levies ranging from 1% to as much as 22 per cent, based on a car’s type, length or engine size. Additional levies are imposed on what are considered to be “luxury” goods, as high as 50 per cent.

American company General Motors CO. gave up on the Indian market in 2017. Ford Motor Co. too ceded its control and moved most of its assets into a joint venture with Mahindra & Mahindra Ltd after struggling to make inroads into the fourth-largest auto market, which the company wanted to be one of its top three markets by 2020.

“Punitive taxes discourage foreign investment, erode automakers’ margins and make the cost of launching new products ‘prohibitive’,” Viswanathan said.

Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make his vehicles unaffordable in India. “I’m told import duties are extremely high (up to 100%), even for electric cars. This would make our cars unaffordable,” he wrote on Twitter last year.]

Automobile sales in India were weathering a slump before the COVID-19 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.

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