Toyota will not expand further in India due to the country’s high tax regime, a blow for Prime Minister Narendra Modi, who is 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 are not 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 to sell some of Suzuki’s compact cars under its own brand, is currently utilizing just about 20 percent of its capacity in a second plant in India.

Toyota began operating in India in 1997. The automaker owns 89 percent of the local unit, but has a small market share — just 2.6 percent in August versus almost 5 percent the year before, Federation of Automobile Dealers Associations data show.

In India, motor vehicles including cars, two-wheelers and SUVs — although not electric vehicles — attract taxes as high as 28 percent. On top of that there can be additional levies, ranging from 1 percent to as much as 22 percent, based on a car’s type, length or engine size.

The tax on a 4,000mm long SUV with an engine bigger than a
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