Today we bring you some news on Volkswagen from India. Along with Mahindra and Bajaj, Volkswagen may pull out of investments made in Maharashtra, (Western India) due to VAT issues.

All three companies have a setup in Chakan which is located near Pune. If Mahindra were to pull out of the investment, this would cost the Maharashtra Government over £53 million.

Decision making is too long

Mahindra are a premier utility vehicle company in India. A spokesman for Mahindra has said that time is very important and they cannot wait for a final answer from the Maharashtra authorities for too long. Dr Pawan Goenka said “It is not a comfortable situation and we are actively considering moving out from Maharashtra as we plan the next phase of expansion. We had taken up the matter with the Maharashtra government and they said they are finding a solution. However, we cannot wait for long and may take a decision on new investments over the next one month.”

A minimal amount of cars sold in Maharashtra

The new rules are clearly not favourable for Mahindra only a minimal amount of cars are sold in the state. He said “Only 16% of our sales come from Maharashtra, while the rest is from outside the state. The new rules mean that the set-off is available only on one-sixth of our sales, thus impacting our cash flows.”

VAT charged for cars sold outside of the state

They plan to develop a new plant which will be able to store 250,000 cars. This will require 400 to 500 acres of space for their new Greenfield project. This is a major problem in the area of Maharashtra as VAT rules were altered last year. The new rules state that VAT set-offs will only apply to vehicles that are sold in Maharashtra.

What do the new actual VAT rules mean? Automakers that develop and produce cars within the state will not get any refunds on VAT to any vehicle that is sold outside of the region.

Ford is another major automotive company to pull out of the area’s developments. They decided to build a factory in Gujarat instead following concerns.

Volkswagen are following the same suit and raising concerns of whether or not to invest further in Maharashtra.

Is this a wise idea? The state are set lose out on major investment from auto companies which will see a reduction in job creation and less business for local suppliers.