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Analyzing Impact of GST on the Automobile Sector in India

Our series on the impact of GST across varied commercial sectors continues forth with our next area of focus – Automobiles. The automobile industry in India is a giant conglomerate, which produces a vast number of cars and bikes annually, to cater to the needs of the billions of our country. Under the previous tax regime, a multitude of taxes were applicable on this sector like, road tax, sales tax, motor-vehicle tax, VAT, registration duty etc., which have now all been subsumed by GST.

The outlined benefits of the new tax regime talk primarily about the simplification of logistics and limiting the operational/manufacturing cost, however, the industry varies in their opinions on compliance and the impact of GST hence, remains arbitrary, due to the fact that compliance to GST is needed on both the ends, by vendors and buyers alike, in order to reap maximum benefits.

Here’s taking a broad look at how GST is impacting the Automobile sector:

  • With the various indirect taxes leading to an increase in the product price, GST is seeking to put an end to all that by the introduction of ITC across the supply chain. This will also help in wiping off the bottlenecks related to the logistics/transportation from one state to another.
  • With CST out of the way, companies will now not need to maintain warehouse/C&F agents in multiple states, this will help in consolidating the warehouse structure and can lower down the operations costs in the supply chain. Additionally, with the inclusion of business overheads (advertising business promotion etc.) under ITC, operational costs can be reduced even further.
  • Dealers will need to be more responsible when it comes to the supply, as it is now taxable under GST, which can hurt their outflow. Furthermore, cash lock will also happen for auto-manufacturers as they will have to pay GST on sale benefits on an earlier date than the timeline that the customers will actually be using them.
  • Two-Wheeler: For two-wheeler, the impact of GST is somewhat marginal as for vehicles with an engine below 350cc the tax levied is 28% and for those above that it’s 31%.
  • Commercial Vehicles: The base rate for most commercial vehicles has been set to 28% as opposed to previous 30.2%. The only cause for concern is minibuses which carry up to 13 passengers, as they invite a 15% cess on them, making the GST on them to be 43%.
  • Passenger Vehicles: The earlier tax on small cars (engine less than 1200cc) used to vary from 31.4% – 33.5%, will now be 28% GST with a variant cess of 1%-3%. Bigger Sedans and SUVs will reap maximum benefits, as they get to pay 28% base fare with 15% cess whereas earlier, the tax slab used to vary from 46.6% – 55.3%.

Hence, the implementation of GST, will invariably reduce the cost of manufacturing of bikes and cars due to the subsuming of all the various taxes into a unified tax slab. Under the GST regime, taxes would be levied on the consumption state as opposed to the origin/manufacturing state, which in turn, will help give a push to the growth rate of the automobile sector.

To take look at the breakdown of the impact of GST on the automobile sector, read our blog on the Impact of GST on Cars.

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