The automotive industry in India is a huge industry that manufactures a significant number of cars annually, the demand for which is mostly domestic. In the present taxation system, there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty which will be subsumed by GST. Though there is still some ambiguity that remains due to incentives/exemptions offered by different states to the manufacturers/dealers for manufacturing car/bus/bike, Following are the benefits and challenges that remain to be seen once GST becomes applicable in July.
Benefits:
Price of the vehicle – Currently, the excise duty for the automobile is divided into four slabs, under which the smallest tax rate is applicable to small cars. With GST implementation, taxes levied by the centre like excise duty and state levels taxes like sales tax, road and registration tax would all be included into one.
If we assume that the proposed tax rate of 18-20 % is established, the vehicle prices are bound to decrease. The vehicle prices are expected to come down and thus will increase their demand. Although it still under contemplation whether there would be a dual tax structure for normal and luxury car models. Though fact remains that many luxury car makers have started offering discounts in anticipation
One Market One Tax: The overall compliance burden is supposed to decrease and bring a lot of efficiency in operations. From the Indirect tax point of view, the entire country will be treated as ‘One Market’ and will enhance operational efficiencies.
The importers/dealers are to be benefitted as they would be able to claim the GST paid on goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT paid. Excise levied on stock transfer will be covered by IGST under the GST Act. Advance received for supply of goods will also be taxed under GST. GST would aid the manufacturers to procure auto components at a comparatively cheaper cost as result of an improved supply chain mechanism under GST.
Challenges:
Dealer Incentive Schemes – Presently, the dealer incentive schemes are independent of the VAT, but there are problems on the applicability of service tax on dealers, subject to the terms of every scheme. The industry outlook is that these schemes are not an independent service by dealers to the manufacturers, rather of the nature of post-sale discounts. The proposed GST Act does not clarify as to whether these incentives or discounts are subjected to GST.
Valuation Disputes – The industry has observed significant disputes under central excise valuation like: sell below the cost for market penetration, inclusion of State Industrial Promotion Subsidies retained by the manufacturer, deductibility of post-sale discounts from value under excise, valuation of demo cars, treatment of PDI charges and other dealer reimbursements, advertisement charges recovered from dealers et al. The proposed GST bill does not abolish the concept of ‘transaction value’ which is a welcome measure nevertheless the powers for rejection of the transaction value are very wide and could lead to significant valuation disputes.
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