Does GST Affect the Automobile Industry?
At the stroke of midnight, July first, 2017, the Goods and Services Tax (GST) came into existence. GST has the affected the automobile industry with excitement at the prospect of low pricing humming with energy at the possibility of lower costs. GST has introduced, not only a new method of taxation in India but in addition also, the opportunity to drive growth.
But the question arises that how precisely has GST profited the automobile sector and its consumer segment 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 current duties & taxes like Excise, VAT, CST, Entry Tax have been merged under GST. This has opened the way for the unification of the whole country under ‘one nation, one tax, and one market’.
In the old tax regime, the tax was levied on the manufacture of vehicles and in addition to the sale of those vehicles outside the manufacturing state, resulting in double taxation which has to be borne by the consumer. For instance, a vehicle that was manufactured in Maharashtra had a Central Sales Tax (CST) and also the excise duty levied on it. imposed on it when the vehicle was transported from the plant to the dealers.
- In GST, the tax is charged at the point of supply. The CST will be supplanted by a solitary IGST, on stock exchange out of state and in addition on sale to the dealer. This will reduce the burden of taxation on the end consumers & he or she can look forward to lower prices of vehicles.
Tax Rates on Vehicles
- The government has declared 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.
Sizeable cost lessening in little vehicles and SUVs
This will specifically profit the white collar class area as the diminished effect of tax collection will be passed on to the end customer through decreased costs of vehicles.
Advantages of GST
The cheaper vehicles will boost the demand for the vehicles & therefore generating the manufacturing growth. Likewise, with the GST rates of taxation being the same across the country so, there will be no differentiation in tax cost for the consumer while transporting the vehicles from another state. This will also reduce occurrences of tax avoidance which happens when consumers purchase the 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 merging 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.