How Will the New Tax System ‘GST’ Play Out for the Indian Auto Industry?

GST

The automobile industry in India has witnessed tremendous success over the past couple of years. For carmakers, business has been booming thanks to rise of a vast middles class that is ambitious and has a high spending power. This, has encouraged some of the leading players in the global automotive market to enter the Indian subcontinent, meanwhile, the companies that already exist in the region focus on further expansion.

India is valued as a massive consumer market, which is also attracting investments from several other large-scale industries apart from automotive. In addition, factors such as low cost of production and abundance of labor are also favoring the prospects of India becoming a hot manufacturing hub. The country is expected to emerge as a leader in the global automotive market as it exhibits massive opportunities both in terms of consumption and production. Currently, the Indian auto industry is engrossed in making all the market assumptions attributed to the new tax policy; Goods & Services Tax ‘GST’ that roles out on July 1st. Reportedly, GST will replace the country’s age old tax system that includes sales tax, excise duty, motor vehicle tax, VAT, road tax, and registration duty. Although it is too early to reach to any definite conclusion on how the new tax system plays out for the sector, owing to the uncertainty surrounding exemptions/incentives provided by different states to the dealers/manufacturers, but any major altercation seems highly unlikely. Post GST, Vat and excise the two taxes charged on the end consumer will be void and is expected to bring down the overall duty, hence will lower tax burdens.

With regards to dealers and importers, GST will now allow them to claim the charges paid on imported/sold goods, which was not possible earlier. Further, IGST will cover all the excise charges paid on stock transfer under the GST law. This new tax system is also expected to help carmakers in procuring auto components at a lower cost owing to an enhanced supply chain management. However, businesses have reportedly expressed their discontent over the obscurity that still prevails in many of the sections of the GST law. A number of carmakers are offering pre-GST discounts in attempt to avoid any severe loss on existing stocks that might follow post-GST. Reports suggest that some of the luxury car brands offered discounts of up to 10-12 per cent last month while prices remained usual for smaller cars.

About Rahul Pandita 2 Articles
An experienced writer and editor, Rahul Pandita has written extensively about the impact of policy changes on business and finance. He is a regular contributor to many authoritative sites. When he is not writing, you can find him playing a game of chess.