Toyota confirms commitment to India, despite halting plans to scale up

Toyota Kirloskar Motor, the local unit of Toyota, has clarified that it remains committed to doing business in India, with new products in the pipeline, despite the high tax regime that has forced the company to halt any plans of further expansion till the time the existing tax structures are revised. This comes a week ahead of the launch of the Toyota Urban Cruiser compact SUV, while the refreshed Fortuner full-size SUV is expected next year.

That high taxes make scaling up difficult is a sentiment that other automobile manufacturers have echoed previously, with even domestic manufacturers like Force Motors pointing out difficulties recently. In an interview, Shekar Viswanathan, vice chairman of Toyota Kirloskar Motor, said that the high taxes on cars and motorcycles make it hard for any company to build scale, further making owning a car out of reach for many. Toyota Kirloskar Motor, which completed 20 years in India last year, has two manufacturing plants in Karnataka, with a total capacity of 3.1 lakh units, which have already been operating under capacity.

And while India became the fourth largest automobile market globally in 2018, sales have seen a steady decline since then, with Toyota going from near 5 per cent of market share in 2018 to 2.4 per cent as of August 2020. Decreasing consumer interest (whether cyclical or indicative of deeper factors), was worsened by the COVID-19 pandemic, which further forced the closing of plants and factories, only making the situation more dire for the auto industry. Not to mention, the looming government regulations like the Corporate Average Fuel Efficiency (CAFE) norms from 2022 onwards, or the Automotive Mission Plan 2026, which will require manufacturers to make additional investments.

Under the current tax structure, automobiles attract one of the highest GST rates of 28 per cent, which is then further subject to an additional cess varying between 1-22 per cent depending on the vehicle's length, engine size and type. Further, the road tax in India varies from state to state, between 8 per cent to 17 per cent, driving up the on-road cost of a car for the end consumer.

While the feasibility of a 'one nation one road tax' structure is still up for debate, automobile makers have requested the Government for a temporary tax break, reducing GST from 28 per cent to 10 per cent, in the hope that it will allow a reduction in prices, boost sales and generate revenue. Recently, Prakash Javdekar, Union Minister of Heavy Industries and Public Enterprises, has said that talks are on with Finance Minister Nirmala Sitharaman on GST issues, including a recommendation to reduce GST by 10 per cent, but with no decision taken yet, hope remains all there is.

Update: Full statement from the manufacturer is as follows, "Toyota Kirloskar Motor would like to state that we continue to be committed to the Indian market and our operations in the country is an integral part of our global strategy. We need to protect the jobs we have created and we will do everything possible to achieve this. Over our two decades of operations in India, we have worked tirelessly to build a strong competitive local supplier eco-system and develop strong capable human resources. Our first step is to ensure full capacity utilisation of what we have created and this will take time. In wake of the slowdown that has been exaggerated by the COVID-19 impact, the auto industry has been requesting the Government for support to sustain industry through a viable tax structure. We remain confident that the Government will do everything possible to support industry and employment. We recognise the strong proactive efforts being made by the Government to support various sectors of the economy and appreciate the fact that it is open to examine this issue despite the current challenging revenue situation. Our recent partnership with Suzuki in India on sharing technology and best practices are also in support of the 'Make in India' initiative and Indian Government's policy, and aim to enhance the competitiveness of both companies."