GST Implementation And Its Impact On Indian Auto Industry

The automobile industry is a booming business of our country, producing large number of cars and further generated by us, the regular users of their end product. With the introduction of the new tax regime, Goods and Service Tax (GST), several taxes which are levied by the state and centre will be amalgamated into one, which will lead to easier administration and enforcement.

An Overview

The consumers are at an advantageous position as an overall reduction of tax is expected. It also ensures a hassle-free movement of goods from one state to another. One need not wait for hours at the state border waiting for the payment of the state tax and the enormous paperwork. It is expected to be applicable from 1st July, 2017.

GST and the Automobile Industry: Impact on Manufactures, Dealers and End Customers

GST will bring about a positive change in the automobile industry due to the efficiency and removal of cascading. 80 per cent of the cars that are manufactured in a particular state are sent to dealers of other states who have to pay the CST (Central Sales Tax) of 2%. After the implementation of the new tax regime, the CST will be integrated with the GST which will be fully creditable by the dealer when he sells it to the other states. GST will also help manufacturers procure auto parts at a cheaper cost.

GST will be favourable for the end customers as well. Presently the end customers pay two taxes: excise and VAT, with an average combined rate of 26.50 % to 44%. After the GST goes live, there will be a less burden of tax on the customers as the expected rates are 18 % to 28 %.

To keep up the goodwill of the brand, most car manufacturers give free services and goods to its customers which are not taxed under the current tax laws. After the implementation of GST, the free services will also be eligible for taxation.

GST and Automobile Insurance Premiums

"The immediate impact will be an increase in the tax from 15 % to 18 % which will have to be borne by the customers", said Tapan Singhel, MD, Bajaj Allianz General Insurance. For families that own a car, there will be a higher premium outgo because of an increase in the rate of tax on insurance. The insurance companies are yet to work out on a positive impact on the tax credit. Also, the benefits of input tax credit will be exempted from insurance. Gopal Balachandran, chief financial officer of ICICI Lombard has said that," the government has continued with the existing exemptions under the GST regime. When there are exemptions the entire value chain of credit gets lost." Hence, the customers have to pay a higher tax.

Conclusion

The automobile industry will experience its share if advantages and negatives with the implementation of GST. Though the customers are likely to pay a higher tax on premiums. this is a revolutionary change which will reform the present tax regime by subsuming all the taxes that are levied currently and will undoubtedly boost the automobile industry.

While you keep a check on how GST would affect the auto-industry, do ensure that your vehicle is properly insured.

Also Read: GST Impact on Used Car In India