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%.
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.
But in reality 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.
Toyota, one of the world’s biggest carmakers, began operating in India in 1997. Its local unit is owned 89% by the Japanese company
Indian Operation Toyota Motor Corp. said it 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.”
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 utilising just about 20% of its capacity in a second plant 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.
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.
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.
The biggest players are the local units of Suzuki and Hyundai Motor Co., which have cornered the market for compact less than 1000 CC affordable with cars. Maruti Suzuki India Ltd. and Hyundai Motor India Ltd. have a combined share of almost 70%.
Toyota, one of the world’s biggest carmakers, has 2.6% Indian market share in August 2020 versus almost 5% a year earlier, Federation of Automobile Dealers Associations data show.
Toyota in India has largely pivoted toward hybrid vehicles, which attract taxes of as much as 43% because they aren’t purely electric.
Elon Musk, the billionaire founder of Tesla Inc., has said import duties would make his vehicles unaffordable in India.
