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Toyota rejects new car, factory plans, blames ‘prohibitive’ tax rates

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NEW DELHI: Japan’s major automaker Toyota suspends plans to launch new cars in India and is also ending new investment in factories as it blames “prohibitive” vehicle taxes for depressing consumer demand , leaving automakers with high costs and idle and unused capacities. .
Tax rates, the company says, have mitigated the ease of doing business in India and made vehicles expensive for customers. Furthermore, with lower demand, companies have not been able to utilize factories capabilities or tap into underlying business potential.
“Do not treat this (auto industry) as a sin. This is a sector that generates a lot of employment, goodwill and a lot of export potential,” Shekar Viswanathan, vice president of Toyota Kirloskar Motors told TOI.
Viswanathan said it is unfair to burden a customer who is already paying personal income tax with high taxes on assets like cars. “… Why shouldn’t you benefit from a lower tax rate? There will be more people to buy. I’m fighting for consumers.”
Toyota runs its business in India in partnership with the Kirloskar family, the latter with a minority stake in the company.
Viswanathan said the scope of the expansion remains a challenge. “Unless tax rates go down, demand won’t go up. It’s a simple equation. If (demand) goes up, only then can we think of a new factory.”
When asked if the company, which is taking Maruti models to meet its requirements, will launch new cars under its own brand, he said that is not possible under the current circumstances. “Launching a new car is prohibitively expensive – developing a new platform, launching it, and then getting volumes to cover the costs, including technology development. It’s a huge risk.”
Viswanathan, who has often voiced his opinion on the industry’s demand for tax reduction, said that while companies earn only 7-10% from vehicle sales, the government earns up to 50% on larger vehicles (via GST and additional levies) and over 28% on smaller cars.
“This is a very complex issue. Investors like us cannot make the decision to expand unless it makes more sense to do business … the ease of doing business is also tied to tax rates.”
Toyota has two plants in India around Bengaluru, and while the first plant (annual vehicle capacity of one lakh) is fully used, the second, and larger, is using only about 15% of the installed capacity of 2.1 lakh units.
“We are only building 30,000 to 35,000 vehicles at the second plant. So there is no reason to expand to a third plant. Tell me how to expand. Until I can show 75% capacity utilization, how can I expand? Can someone do that? ”
Despite its presence of more than two decades in India, Toyota has not been able to enter the Indian market and its volumes have struggled. Its market share in August this year stands at a poor 2.6% in the passenger vehicle category against 5.7% registered in the same month last year. This despite other companies such as newcomers Kia Motors of Korea and MG Motors of China have managed to pull out numbers. Even older players like Maruti Suzuki and Hyundai have increased their participation.
Viswanathan said that if demand returns, the company will benefit and only then can it think about expansion. “If the market is there, the factories will come. The government should look at GST rates to stimulate growth.”

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