Toyota Motor Corp recently announced that it will not further expand in India as India has a high tax regime. This move is a huge downfall for the PM Narendra Modi as he is trying to lure global companies to balance the hammered economy amid the coronavirus pandemic.
Shekar Viswanathan, vice-chairman of Toyota’s local unit, Toyota Kirloskar Motor said that companies find it hard to build scale as the government keeps taxes on motorbikes and cars so high. High taxes mean all consumers will not have cars thus making factories sit idle and no creation of jobs, said Shekar.
“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.”
In India taxes on cars, 2 wheelers and SUVs are as high as 28%. There are additional levies as well which range from 1% to 22% depending on the type of car, its length or engine size.
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.
In 2017, General Motors Co quit the country and Ford Motor Co decided last year to move most of its India’s asset into a joint venture with MM Ltd as they struggle a lot in the country to have buyers.
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.
Although, discussions are going on between ministers to reduce the taxes. However, Prakash Javadekar, India’s Heavy Industries Minister said earlier this month that there may not be an immediate agreement on an actual cut.
“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.
He said that India should create a demand before asking firms to set up shops. He added that as soon as a product performs well, the government slaps it with a higher and higher tax rate.