GST: What Is It And How Is It Beneficial To The Auto Industry?

The whole country is hyped about GST. So what is it and how is it even related to the automotive industry? Here is what you should know.

What Is GST?

GST or Goods and Service Tax is actually an indirect tax reform which aims to remove the tax barrier between states and make the whole country a single market. The GST will also replace as many as 17 indirect central and state taxes that affect logistics cost across many business sectors, that will make business easier.

So How Is It Beneficial To The Auto Industry?

One major benefit of GST is that it will reduce cost of logistics, which have been a major hurdle in the auto industry. This will help make way for competitive manufacturing.

This will help remove multiple taxes on the cost of goods and services. Automobile manufacturers in India are located in a few states and they sell cars to dealers in other states, outside from where they are made. In this process, a two percent Central Sales Tax (CST) is charged on the cost of car, which is not creditable. With the implementation of GST, this becomes creditable.

The GST will also help in bringing down tax to around 18 percent from the present 27 percent for some segments, which will inturn drop prices, leading to more demand for vehicles.

So How Have The Industry Leaders Welcomed GST?

Vishnu Mathur, the Director General of the Society of Indian Automobile Manufacturers said, "I think the automotive sector will be one of the most positively impacted sectors. At present, we have multiple rates of excise duty. With the GST coming in, we are hoping we do not see more than two rates."

"So that will be also a very positive development as far as our industry is concerned, which we believe is very, very highly taxed. While we haven't seen the GST rate yet, whatever comes will certainly be lesser than cumulatively what it is today."

"We have been hoping that GST would be implemented. It is certainly going to reduce our overall cost structure. Finally, we are going to become a one, single market."

Sumit Sawhney, the CEO and Managing Director of Renault India said, "GST will positively impact the automobile industry by minimizing and simplifying the taxation burden."

"The proposed tax is expected to drive overall consumer demand since the cost for the logistics and supply chain inventory will be curtailed by almost 30-40 percent, the benefits of which are expected to be passed on to the consumers."

A. K. Rastogi, the General Manager of Finance at Nippon Audiotronix said, "GST will be positive for the automotive sector primarily because of the removal of cascading effect of tax on the cost of goods and services that is expected with GST."

"Currently most of car manufactures are located in few of the states in India. When they sell car to other states, they charge 2 percent CST, which is currently included in the cost of car as it is not creditable. However, in GST regime, credit will be available."

"Currently MRP based payment of excise is applicable on accessories leading to higher landed cost. In the GST regime, it will go away."