GST bill brings good news for the auto sector

The Goods and Services Tax (GST) bill to be tabled in the winter session of Parliament is to come as a breath of fresh air to many industrialists. The frame work of the GST bill for India is such that it would essentially replace all in-direct taxes which are currently being imposed on goods and services by the Indian Central and State governments. The cabinet cleared the GST bill on December 17, 2014 and it is likely to be tabled in the Parliament on the December 22, 2014. The GST bill will enable the automobile, logistics and entertainment sector to earn heavy dividends from next year’s roll-out. However, sectors like petroleum, alcohol and tobacco will lose out as they have not been incorporated in the bill as of now.

An assessment done by experts indicated that the GST will bring about a fall in the cumulative duty rates of SUVs and other larger cars from 41pc to 20-24pc. Players like Mahindra & Mahindra who earn 25pc of their revenues from the SUV segment will some of the biggest beneficiaries of the GST roll-out. For other segments in the auto sector like tractors which were previously exempted from excise duty but paid 4pc Value Added Tax (VAT) the GST rate will increase to 12pc. In order for the GST to be effective earlier studies have estimated that a revenue neutral rate of 12-16pc should be maintained. The empowered committee has suggested a rate of 27pc.

Experts have suggested that the real effects of the GST bill will be felt if manufacturers are to maintain competitive pricing and the inflationary pressures are to decrease.

The GST bill will bring about a unified market and will ease the movement of goods across the country thus benefiting auto manufacturers who manage some of the most elaborate supply chain networks in the country today. The GST bill will replace in-direct taxes like central excise duty, service tax, additional customs duty, surcharge and cesses, VAT/ sales tax, entertainment tax, entry tax, luxury tax, taxes on lottery, betting and gambling, state surcharge and cesses. The GST bill is expected to have three components CGST to be administered by the centre, SGST to be administered by the state and IGST to be levied for interstate trade which will be levied and collected by the central government. The consumer is always the last link in the supply chain and will have to bear the cost of GST to be levied on a product by the penultimate link.