The Centre on Tuesday rebutted reports that Toyota Motor Corporation will stop investing in India. Union Minister Prakash Javadekar said the company has clarified that it would invest more than Rs 2,000 crore in the Indian market in the next 12 months.

This came after Shekar Viswanathan, vice chairperson of Toyota’s local unit, Toyota Kirloskar Motor, told Bloomberg that Toyota would not further expand operations in India because of the country’s punitive tax regime for the automobile industry. In an interview with the publication, Viswanathan said: “We won’t exit India, but we won’t scale up.”

“The news that Toyota Company will stop investing in India is incorrect,” Javadekar tweeted, tagging Vikram Kirloskar, who is also the vice chairperson of Toyota Kirloskar Motor. “Kirloskar has clarified that Toyota will invest more than Rs 2000 crore in next 12 months.”

In India, motor vehicles including cars, two-wheelers and sports utility vehicles attract taxes as high as 28%. Besides this, the government imposes additional levies ranging from 1% to as much as 22%, based on a car’s type, length or engine size. The additional levies are imposed on what are considered to be “luxury” goods.

Viswanathan told Bloomberg that such punitive taxes discourage foreign investment, erode automakers’ margins and make the cost of launching new products “prohibitive”. “You would think the auto sector is making drugs or liquor,” he added.

Toyota is one of the world’s biggest carmakers. The company began operating in India in 1997. Its local unit is owned 89% by the Japanese company. It also has an alliance with Suzuki Motor Corporation. Toyota’s operations in India are largely focussed toward hybrid vehicles, which attract taxes of as much as 43% because they are not purely electric.

“The government keeps taxes on cars and motorbikes so high that companies find it hard to build scale,” Viswanathan said. “The high levies also put owning a car out of reach of many consumers, meaning factories are idled and jobs aren’t created. “The message we are getting, after we have come here and invested money, is that we don’t want you.”

In a statement, Toyota Kirloskar said it would continue to be committed to India and needs to protect jobs, but added that utilising the capacity it has created “will take time,”. The unit is “confident” the government will do everything possible to support the industry, which has requested a “viable tax structure,” the statement added.

The automobile sector has been weathering a slump in demand which was further compounded because of coronavirus pandemic. In July, amid a countrywide lockdown to contain the spread of Covid-19, India’s largest carmaker Maruti Suzuki suffered a first quarter net loss of Rs 249.4 crore – registering a loss for the first time in at least 15 years. The loss this quarter was due to a steep fall in business activity owing to the coronavirus pandemic.