Impact of GST on Indian Automobile Industry

The GST deadline proposed by the Govt is April 2017. There have been many speculations regarding the impact of the GST on different sectors such as oil and gas sector, Telecom sector and the away GST will change the rulebook of the ongoing tax system in India. This anticipated tax reform, GST will replace the indirect taxation and bring all the taxation under a single body. This will make India a large single market space and will enhance the ease of doing business across the country in each and every sector. The automobile sector is likely to gain from the new tax reform and the auto companies are expecting growth with the implementation of the GST in India. This will reduce several unnecessary logistics cost, remove trade hurdle and offer better interstate sales and delivery. Moreover, with the drop in the effective tax rates from 27 percent to 18 percent, the demands of the automobiles will get boosted. It is estimated that the on-road prices will go lower by 8 percent after the implementation of GST. The automobile makers have raised their views on the GST. Vishnu Mathur, director general, Society of Indian Automobile Manufacturers (SIAM) says,”I think the automotive sector will be one of the most positively impacted sectors. At present, we have multiple rates of excise duty. With the GST coming in, we are hoping we do not see more than two rates. So that will be also a very positive development as far as our industry is concerned, which we believe is very, very highly taxed. While we haven’t seen the GST rate yet, whatever comes will certainly be lesser than cumulatively what it is today.”

“We have been hoping that GST would be implemented. It is certainly going to reduce our overall cost structure,” Mathur added.

Kenichi Ayukawa, Managing Director and CEO, Maruti Suzuki India says-

“The automotive industry wholeheartedly welcomes this tax reform. GST is about unifying the market, widening the tax net and generating efficiency throughout the value chain. Faster implementation will be critical in determining its success.”

A Tata Motors spokesperson sai-

“We welcome the passage of the forward looking reform which will augur well in the long term for uniform economic progress across the country. In addition to simplifying the tax structure and administration, it will aid ‘Make in India’ becoming more efficient and accelerate movement between producing and consumption locations.”

According to Sumit Sawhney, CEO and Managing Director, Renault India-

“GST will minimize and simplify the taxation burden on the automotive industry. It is expected to drive overall consumer demand since the cost for the logistics and supply chain inventory will be curtailed by almost 30–40 per cent, the benefits of which are expected to be passed on to the consumers.”

Yadvinder Singh Guleria, senior vice president, sales and marketing, Honda Motorcycle and Scooter India Pvt Ltd, said-

“The GST is definitely one of the most important tax reforms in the history of India which was closely tracked by each and every one this monsoon session of Parliament… The new simplified and uniform tax structure will reduce the cascading effect of tax-over-tax and provide a 360-degree ease-of-doing business for the complete automobile ecosystem, be it suppliers, manufacturers, dealers and most importantly customers who will get the benefit.”

Currently, the passenger vehicle segment in India is 2.8 million units in annual sales and is expected to reach 5 million units in annual sales by the year 2020.