Finally , GST becomes Law as president gives assent to constitution amendment bill on Thursday. A major step towards rolling out the indirect tax regime which the government wants to come into effect from April, 1st next year.
For the Auto industry , the implementation of GST would result in manufacturers paying lower taxes which will ultimately benefit end customers.GST is going to replace as many as 17 indirect central and state tax levies. This will result into reducing compliance burden for automobile industry. It is also expected that there shall be a reduction in overall cost structure as the same may come down from 25 % – 40% to 18 % to 22 %.
Some of the key Benefits to automobile ecosystem , Post GST implementation are as following :-
1) Reduction in Logistic cost :-
According to foreign brokerage Nomura, GST will lead to the elimination of Central Sales taxes and inter-state VAT arbitrage possibilities. This will lead to the consolidation of warehouses and increased efficiencies in the logistics chain. Overall, it expects significant reduction in logistics costs across the value chain. Currently , all states have levied many indirect taxes on the movement of goods like entry tax , purchase tax, State vat , cesses and surcharges. So, all trucks carrying new bikes and cars from factory to dealership have to pass through multiple checkpoints which results in adding cost at every stage. With only one tax to be paid, movement of goods is expected to become easier and faster.
2) Credit of CST @ 2% :-
GST aims to remove tax barriers between states and creates a single market. Currently most of Car manufacturers are located in few of the states in India. 80 % of these cars are sold to dealers in state outside states where they are manufactured. In doing so 2 % CST is charged on the cost of car which is not creditable under the current regime But post GST implementation, the same shall be creditable.
3) Boost to Electric vehicle industry :-
Currently the tax levied by state government on green vehicle varies between 0 % to 5 %. Only Uttar Pradesh , Punjab and Bihar charges more than 14 %. Road tax is almost nil in majority of states. Considering the average Vat levied on green vehicle across India, it comes out to be approximately 4 % . It is expected that government should keep it either at par or lower rate than the current tax structure , for a certain period. This will help in reviving the Electric vehicle industry.
For some segments of the automobile industry like tractors which are exempted from excise duty but pay four percent VAT, The GST will increase to 12 percent.