Given the current economic and geopolitical situation, those in power have been pitching India as an alternative to our neighbour, what many like to call as the world’s factory. However, those who have already invested big numbers here and have been operating for decades, aren’t happy with the state of affairs. Among them is Toyota, the world’s largest carmaker.
According to a Bloomberg report which quotes Shekhar Vishwanathan, Vice Chairman of Toyota Kirloskar Motor, he says, “The government keeps taxes on cars and motorbikes so high that companies find it hard to build scale. High taxes have also put owning a car out of reach for many consumers, leading to idle factories and lack of job creation. The message we are getting after we have come here and invested money is that we (the Government) don’t want you. In the absence of any reforms, we won’t exit India, but we won’t scale up.”
Adding to the above and expecting that the current 5% tax on electric vehicles will go up too once the demand picks up, he said, “Market India always has to precede Factory India, and this is something the politicians and bureaucrats don’t understand. 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. Such punitive taxes discourage foreign investment, erode automakers’ margins and make the cost of launching new products prohibitive. You’d think the auto sector is making drugs or liquor.”
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The current tax structure for ICE-powered automobiles attracts taxes up to 28%, and on top of that, additional levies add another 1% to 22%, depending on the size and fitments on the car. The auto industry was already facing severe headwinds for quite some time, during which, it had to ensure that all new vehicles meet the new emission norms. The upgrade required each and every player to invest heavily before the new norms were implemented on April 1st, 2020, and then, the pandemic wiped everything out when the auto sector recorded nil sales for an entire month during the lockdown. The industry has been in discussion with the concerned ministry for a reduction in taxes, however, given the current situation, it is highly unlikely that immediate relief could be on its way.