New Delhi: Honda Motor Co.’s wholly owned two-wheeler unit in India is unlikely to buy parts this year from the component-sourcing operation started by its Japanese parent because it doesn’t want to pay additional taxes. The move could defeat the purpose of having a separate subsidiary that would source parts for all Honda operations in India.
Honda Motors India Ltd was set up in Greater Noida late last year to integrate the sourcing and logistics operations of the four Honda subsidiaries in India—Hero Honda Motors Ltd, Honda Motorcyclyes & Scooters India, Honda Siel Cars India and Honda Siel Power Products Ltd.
This was supposed to result in as much as 20% improvement in cost. But with the bike-making units located in Haryana and the sourcing unit in Uttar Pradesh, parts that are brought in from outside the state incur a slew of taxes, including central sales tax (CST). “We are going (to Honda Motors) only when the tax issue is resolved,” said Yukihiro Aoshima, president and CEO of Honda Motorcycles.
Honda Motorcyles typically orders components worth Rs4,500 crore in a year. The company wouldn’t say how much of that comes from outside the state it’s based in.
Even Hero Honda Motors Ltd, in which Japanese major Honda has 26% stake, is not keen on joining the parts subsidiary because of the same problem. So far, Greater Noida-based Honda Siel Cars India is the only company to team up with Honda Motors; Honda Siel Power Products is set to follow suit mid-year.
Honda Motors India Ltd was set up in December 2006 with a capital of Rs15 crore and is targeting a turnover of Rs180 crore by 2007-08. A Honda spokesperson refused to comment on whether this target would be met even if Honda Motorcycles doesn’t join in.
In India, in addition to taxes levied by the Centre, states impose taxes on the movement of goods, which can range from value-added taxes to octroi, with little uniformity.
In the Budget, finance minister P. Chidamabaram reduced the level of CST, which is levied when goods are transferred from one state to another, by one percentage point to three and said the country would move to a uniform goods and services tax regime by 2010.