Toyota Blames High Taxation for Halting Expansion in India: Report
Blaming high tax regime, Japanese auto-maker Toyota Motor Corp has decided not to expand its operations in India. While its Indian unit, Toyota Kirloskar Motor Pvt Ltd, will remain in business, it will not scale up operations, a senior executive of the company told Bloomberg.
 
Quoting Shekar Viswanathan, vice chairman of Toyota Kirloskar Motor, the report from BloombergQuint.com says, "The (Indian) government keeps taxes on cars and motorbikes so high that companies find it hard to build scale. The high levies also put owning a car out of reach of many consumers, meaning factories are idled and jobs are not created."
 
“The message we are getting, after we have come here and invested money, is that we don’t want you,” Mr Viswanathan said in an interview, adding, "In the absence of any reforms, we won’t exit India, but we won’t scale up.”
 
Toyota Kirloskar Motor is the fourth largest car-maker in India after Maruti Suzuki India Ltd, Hyundai Motor India Ltd and Mahindra & Mahindra Ltd (M&M). Toyota Kirloskar Motor is a joint venture between Toyota Motor Corp and the Kirloskar group. Toyota holds 89% stake in the joint venture, while the balance 11% is owned by Kirloskar group.
 
In India, goods and service tax (GST) is levied at 28% on car and bikes.
 
In addition, there is a cess ranging from 1% to 15% levied by the government, depending on the class of the vehicle. 
 
As is the practice in the automobile market, manufacturers and dealers offer lot of free goods or services or warranty to attract buyers in a very competitive business. Prior to GST, all such free goods or services were not taxed. But all these are now eligible for taxation under the GST. Since customers are reluctant to pay tax on free goods or services, it is the auto-maker or dealer who has to bear the burden of this additional tax.
 
“You would think the auto sector is making drugs or liquor,” Mr Vishwanathan from Toyota Kirloskar told Bloomberg, adding "Such punitive taxes discourage foreign investment, erode automakers’ margins and make the cost of launching new products 'prohibitive'."
 
According to data released by the Society of Indian Automobile Manufacturers (SIAM), during August 2020, a total of 215,916 passenger vehicles were sold in the domestic market, representing a rise of 14.16% from 189,129 units offtake during the like period of 2019.
 
However, according to Federation of Automobile Dealers Associations (FADA), vehicle registration during August continues to remain down by 27%, with the Indian economy continuing to battle with coronavirus (COVID-19) pandemic.
 
FADA says while original equipment manufacturers (OEMs) are dispatching vehicles to dealers with a purpose of stocking-up inventory for the upcoming festival season, retail sales are still at 70%-75% levels, despite the low base of last year. FADA says it advises extreme caution to all OEMs and its dealer fraternity to avoid excessive inventory build-up, thus leading to unmanageable interest cost which could further result in dealership closures.
 
FADA says it had once again requested the government to announce demand boosting stimulus and awaits the announcement of reduction in GST, especially for two-wheelers.
 
Toyota Kirloskar Motor is, however, facing more taxes as it is largely pivoted towards hybrid vehicles. Since these are not pure electric vehicles (that attract 5% tax) the auto-maker ends up paying as much as 43% tax on its hybrid vehicles.
 
The Indian government is doling out all benefits like lower tax for electric vehicles (EVs), without even looking into infrastructure (read charging stations) for these vehicles. In the Union Budget for 2019-20, the government announced to provide additional income-tax (I-T) deduction of Rs1.5 lakh on the interest paid on the loans taken to purchase EVs.
 
No such benefits are available for other vehicles that run on petrol, diesel or are hybrid vehicles. These vehicles are not only affordable but can be refuelled and serviced in any corner of the country. The same cannot be said for EVs. So, while auto-makers have the capability and are producing vehicles other than EVs, they are burdened with higher taxes.  
 
In September 2014, prime minister Narendra Modi had launched his much ambitious 'Make in India' initiative to encourage companies to manufacture in the country and incentivise dedicated investments into manufacturing.
 
According to a September 2018 McKinsey report on 'The auto component industry in India: Preparing for the future', clubbed with growing income levels, it was expected that India’s consumer class will expand, leading to higher spending on more and better vehicles across segments – providing automotive companies with a ready-made market.
 
The Automotive Mission Plan (AMP) 2026 sees automotive industry in India to grow 3.5 – 4 times to $260 billion to $300 billion from the current value of $74 billion, generate 65 million jobs and contribute over 12% to India's gross domestic product (GDP).
 
While this picture looks rosy, auto-makers are, however, struggling with higher taxes.
 
Vehicles are no more luxury in India, which has a dearth of good, reliable public transport network with few exceptions. However, for the taxmen, buying and owning a vehicle is a luxury and so a 28% GST as well as cess is levied. We are not even talking about running cost of vehicle, especially the fuel cost, which is reaching new limits, despite lower crude oil prices as the Union and state governments are not ready to lower taxes. In fact, they have increased taxes on fuel to make good lower collection of revenues from all other sources. This makes buying and maintaining a vehicle more costly, as can be seen lower sales or registration volumes in the automobile market.  
 
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    COMMENTS

    Newme

    2 weeks ago

    43% tax is daylight robbery.

    mudit3

    2 weeks ago

    India is a highly overtaxed country with low import duties on industrial goods making it a haven for cheap imports So many representations are with the various ministries but none have been implemented. The slogan in reality is "the world makes for India."

    s5rwav

    2 weeks ago

    More the Taxes on Bigger Size Petrol and Diesel & CNG Driven Vehicles in India or, for that matter anywhere in the world, is good while the Taxes on Electric Vehicles Must be Low in the Interest of Climate Justice to Our Planet Earth. I am Babubhai Vaghela from Ahmedabad. Thanks.

    RIL Offers up to 40% Stake in Reliance Retail to Amazon
    Reliance Industries Ltd (RIL) has offered up to 40% stake in its subsidiary Reliance Retail Ventures Ltd (RRVL) to Amazon.com Inc. for about $20 billion.
     
    Amazon has held discussions about investing in the retail arm of RIL and has expressed interest in negotiating a potential transaction, said a Bloomberg report.
     
    Shares of RIL surged on Thursday to touch a record high of Rs2,343.9. Its market-capitalisation is currently over Rs14.67 lakh crore.
     
    RIL shares closed at Rs2,314.65, higher by Rs153.40, or 7.10%, from its previous close.
     
    Both the companies, however, have termed the report as 'speculative'.
     
    In a regulatory filing, RIL said: "We do not comment on media speculation and rumours and we cannot confirm or deny any transaction which may or may not be in the works."
     
    It added that the company evaluates various opportunities on an ongoing basis and it will make necessary disclosures in compliance with SEBI regulations.
     
    In reply to an e-mail by IANS, an Amazon spokesperson said: "We do not comment on speculations of what we may or may not do in the future."
     
    If the deal goes through it would be among the largest foreign direct investments into India, according to analysts.
     
    Earlier in July, RIL Chairman Mukesh Ambani had announced at the Annual General Meeting that global partners and investors will be brought into Reliance Retail in the next few quarters. He said that several strategic and financial investors have shown interest in Reliance Retail.
     
    On Wednesday, RIL announced that Silver Lake will invest Rs7,500 crore into its subsidiary RRVL.
     
    The investment values RRVL at a pre-money equity value of Rs4.21 lakh crore. Silver Lake's investment will translate into a 1.75% equity stake in RRVL on a fully diluted basis, RIL had said in a regulatory filing.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    s5rwav

    2 weeks ago

    International Joint Venture in What Way is in Larger Public Interest Dear Chief Justice of India? I am Babubhai Vaghela from Ahmedabad. Thanks.

    Stake Sale, Future Group Asset Acquisition To Boost Reliance's Retail Business: Fitch
    Reliance Industries Ltd (RIL)'s plan to sell a stake in its retail subsidiary at an equity valuation of Rs4.21 trillion and its proposed acquisition of Future Group's retail businesses will solidify RIL's position in India's organised retail market and strengthen its consumer business, says Fitch Ratings. 
     
    In a note, it says, "We believe the proposed acquisition of Future Group's retail business will fortify its retail footprint, especially in the grocery retail sub-segment. The equity stake sale will further strengthen RIL's financial profile and competitive position beyond the proposed acquisition."
     
    According to the ratings agency, the acquisition will add about 1,700 large stores to RIL's 11,806 stores in its retail segment and increase its organised retail revenue market share by around 5%. The asset acquisition will add about 2%-2.5% to RIL's earnings before interest, taxes, depreciation, and amortization (EBITDA) in the financial year ending March 2022 (FY21-22), it added. 
     
    The Rs247 billion (US$3.4 billion) consideration for the acquisition is less than 3% of its FY19-20 total assets, a relatively small impact on its balance sheet, Fitch says, adding, Future Group's solid presence in Tier-1 Indian cities with well-established retail formats, including Big Bazaar, Central, FBB, Easyday and Brand Factory, will complement RIL's increasing strength in second- and third-tier cities. 
     
    RIL's acquisition of Future Group's warehousing and logistics business, in addition to its stores, will also help to expand the scale of JioMart, RIL's online grocery platform.
     
    "We also expect the synergies from the acquisition to enhance RIL's bargaining power with vendors, and offline and online customer reach. These benefits and RIL's proven business strategies would over time bridge the EBITDA margin gap between the 8.7% for RIL's retail segment in FY20 and around 5% for Future Retail Ltd, a retail subsidiary of Future Group," Fitch added.
     
    The Future Group asset acquisition is subject to regulatory, shareholder, creditor and other customary approvals, which may take around six months to complete. The total consideration of Rs247 billion would include a cash payment of about Rs50 billion-Rs60 billion and balance as liabilities would be absorbed by RIL. 
     
    Fitch says, it retains its expectations for RIL to return to a net cash position by FY21-22, despite the additional debt for the transaction.
     
    It says, "Our net cash expectation is driven by proceeds from the sale of RIL's stakes in its telecom and retail subsidiaries. RIL has announced plans to sell a 1.75% stake in Reliance Retail Ventures Ltd, its retail subsidiary, to Silver Lake for Rs75 billion, subject to regulatory and other customary approvals. This is in addition to the sale of around 33% of Jio Platforms for Rs1.52 trillion. RIL also completed its Rs531 billion rights issue in June 2020, with Rs133 billion in cash received to date and the balance in FY22."
     
    According to the ratings agency, RIL's net cash position would also be helped by the completion of a Rs252 billion investment by Canada's Brookfield Infrastructure Partners LP in Tower Infrastructure Trust, which plans to use part of the proceeds to pay down RIL's investment of about Rs128 billion as of March 2020, in the non-convertible debentures issued by the trust. In addition, RIL received Rs76 billion in Q1FY20-21 from BP plc for a 49% stake in RIL's fuel retail network and aviation fuel business, Fitch added.
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