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How Does GST Affect the Automobile Industry?

04 July, 2017

At the stroke of midnight, July 1st, 2017, the Goods & Services Tax (GST) came into being. GST has the automobile sector buzzing with excitement at the prospect of lower prices. GST has ushered in, not just a new era of taxation in India, but also the opportunity to drive growth.

How exactly has GST benefitted the automobile sector and the vehicle buyer at large? Mr. C. Ramakrishnan, Group Chief Financial Officer, Tata Motors Limited, decodes the fine print of the landmark tax reform.

Just one tax

All the existing taxes like Excise, VAT, CST, Entry Tax have been subsumed under GST. This has paved the way for the unification of the entire country under ‘one nation, one tax, and one market’.

In the old tax regime, tax was levied on the manufacture of vehicles as well as on the sale of those vehicles outside the state of manufacture, leading to double taxation. This was borne by the consumer. For example, a vehicle that was manufactured in Maharashtra had a Central Sales Tax (CST) as well as excise duty levied on it when the vehicle was transferred from factory to the retailers.

In GST, the tax is charged at the point of supply. The CST will be replaced by a single IGST, on stock transfer out of state as well as on sale to the dealer. This will reduce the burden of taxation on the end consumer and he or she can look forward to lower prices of vehicles.

Tax rates on vehicles

The government has announced the tax rates under GST. Automobiles have been kept under the 28% tax bracket. The changed tax structure has different implications for different types of vehicles.

  • A marginal change in the tax on commercial vehicles
  • Sizeable cost reduction in small vehicles and SUVs

 This will directly benefit the middle-class sector as the decreased impact of taxation will be passed on to the end consumer through reduced prices of vehicles.

Benefits of GST

The cheaper vehicles will fuel demand in the market and consequently boost manufacturing growth. Also, with the GST rates of taxation being the same across the country, there will be no differentiation of tax cost for the consumer when procuring the vehicles from another state.  This will reduce incidences of tax evasion which occur due to consumers buying vehicles from states other than where they reside.

With GST, things like multiple levels of taxation, elaborate tax compliance obligations, and cascading taxes will be a thing of the past. A simplified and fully-automated tax mechanism ensures better compliance.

Another thing to note is that GST will reduce the cost of manufacturing due to the subsuming of different taxes levied in the past. Since the taxes will be charged on supply, and consumption state, rather than the origin state, it would give a boost to the growth rate of the automobile industry.

GST, Good and Services Tax, Tata Motors, Commercial vehicles, Passenger Vehicles, Utility Vehicles, GST Automobile Industry

So what’s your take on GST? How has it affected you? Tell us in the comments below.

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