In a blow to India's plans to lure global companies to invest in the country, Toyota Motor Corp has said that it would not expand further in India. The motor giant has cited the country's high taxes as a deterrent to its expansion. It has, however, also clarified that it would not exit India.

Shekhar Vishwanathan, Vice Chairman of Toyota's local unit Toyota Kirloskar Motor has said that the government keeps taxes on cars and motorbikes so high that companies find it hard to build scale, as mentioned in a report in Bloomberg. He added that high taxes have also put owning a car out of reach for many consumers, leading to idle factories and lack of job creation. Vishwanathan said, "The message we are getting, after we have come here and invested money, is that we don't want you." If there are no reforms then, he said, they won't exit India but will not scale up either.

The company's local unit is owned 89% by Toyota. According to Federation of Automobile Dealers Associations (FADA) data, the company had a market share of 2.6 per cent in August from almost 5 per cent a year ago.

Motor vehicles in India, including cars, two-wheelers, and sports utility vehicles, excluding electric vehicles, attract taxes as high as 28 per cent. Additionally, there are levies ranging from 1 per cent to as much as 22 per cent based on the variant and size of the car. The additional levies are imposed on what is considered luxury goods.

Viswanathan added that such punitive taxes discourage foreign investment, erode automakers' margins, and make the cost of launching new products prohibitive. "You'd think the auto sector is making drugs or liquor," he said, as mentioned by the news agency.

Toyota is currently utilising just about 20 per cent of its capacity at its second plant in India.

"Market India always has to precede Factory India, and this is something the politicians and bureaucrats don't understand. 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. Vishwanathan expects taxes on electric cars, which currently stand at 5 per cent, to go up once sales increase.

Meanwhile, India is offering incentives worth $23 billion, including production-linked breaks for automakers to attract firms to set up manufacturing.