Impact of GST implementation on Indian automobile industry

Abstract: Goods and Services Tax (GST) is implemented in around 150 countries so far. In
India the GST regime started from 1 July 2017. It is an indirect tax or also called as
consumption tax on the supply and services of goods. It includes all the previous state and
central taxes. The GST is designed such that to collect the tax from the point of consumption
not like the previous taxes which were collected at the origin. This current paper discusses the
types and significance of GST and its impact in India especially on the automobile sector.
Key words: GST in India, impact of GST, Automobile sector in India, GST and Automobile
sector
Introduction: Implementation of GST in India is the biggest and the most significant tax
reform in the history or tax. GST eliminates the tax on tax structure and implements a single
tax structure though out the country. This is a simplified tax policy and removes the
cascading taxes. Avoids multiple taxes levied by the central and state governments. Replaces
all the taxes with a single tax structure.
Objectives:
To discuss the need and implementation of GST in India
To discuss the benefits of GST
To study the impact of GST on the sales and growth of automobile industry in India.

Implementation of GST in India

Many countries are following a single tax system which is nothing but GST system. A single
unified tax rate is applicable throughout the country. In India this unified tax system is
implemented from the mid night of 30th June 2017. In this tax system all central taxes like
sales, excise and service tax, all sate taxes like entry, entertainment, Sin and luxury tax etc are
combined together and collected as a single GST. It is a value added tax levied by the
government for all the goods and services inside the country for domestic consumption.
Consumers will pay the GST for the goods and services they purchase. The industries who
sell the goods and services will pay the GST to the government thus the government gets
revenue in the form of tax.

GST is first implemented in European countries. France implemented it first and later many
countries like Canada, Vietnam, South Korea, Brazil, Spain, Singapore etc followed it.

Before implementation of GST, Indian had sales tax in practice where the tax will be levied
each time the product is goes for sale from the stage of manufacturing till the stage of final
consumption. This was resulting in cascading of the tax and all the burden was falling on the
end consumer. This in turn resulted in economy inflation in India. With the implementation
of GST, this issue is solved to some extent. After implementing the GST, only the final buyer
or consumer bear the GST that is being charged by the last dealer in the supply chain.

The GST structure is or two-tier type where the tax will be levied by center and state both
based on the interstate or intra state supplies. The tax levied by center is Central Goods and
Service Tax (CGST) and the tax levied by state is State Goods and Service Tax (SGST). If
the products or services are between the states, then the center will levy the Integrated Goods
and Services Tax (IGST). Apart from the products, GST is also levied on different
transaction like purchase, barter, sale, lease, import of good and services.

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 Fig.1 different categories of GST
Different Slabs of GST
GST has different slab rates as 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. It is carefully
defined such that the essential food items and services are charged at low tax rates and luxury
products are taxed at higher slab rates. The structure of different slab rates are explained
below.
There are almost 500 services and 1300 products are divided into different slab rates, gold is
kept at 3% tax rate and precious stones at the rate of 0.25% GST.
0% Tax -Regular consumption material like the vegetables, handlooms, milk and curd etc are
falling in the category of no tax. There will be 7% of goods and services under this no tax
category.
5% Tax- 14% of items like cashew nut, coffee, tea, kerosene fertilizers, small restaurents etc
12% Tax -17% of items like ayurvedic medicines, cellphones, sewing machines, spectables,
work contracts etc fall under this category.
18% Tax – 43% of goods and services like pasta, cornflakes, jams, mineral water, notebooks,
bamboo furniture, telecom services etc.
28% Tax – 19% of goods and services such as chewing gum, cacuum cleaner, automobiles,
deodorants, paints and movie tickets etc will fall under this slab rate.
Taxes not subsumed in GST
The main purpose of introducing GST is to subsume different taxes of state and central. But
few of indirect taxes are not subsumed in GST. They are Basic customs duty, export duty, toll
tax, property tax, stamp duty and road and passenger tax.

Positive impact of GST

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  Tax evasion can be avoided with the introduction of GST
 Middle men interaction is eliminated thus the overall cost of the product will come
down.
 Few fields like health and education are exempted from GST
 Life saving drugs are taxed at nominal rate such as 1%

Benefits of GST to Business

GST implementation reduces the hassle of indirect taxes and it is easy to pay the taxes for
the businesses. Filing of GST is made easy and transparent by using an advanced IT
platform.
The tax rate will not vary from state to state as there is one tax for one product.
There is no overlapping of taxes and thus the hidden costs are avoided.
As the tax burden comes down, the consumption will increase and thus the production
will also be increased, helping the industry to grow.

Benefits of GST to State and Central Governments

It is easy to oversee the GST paid by using an advanced IT platform whereas it was
difficult to oversee the multiple taxes in the previous VAT regime.
As the tax evasion cannot be done, revenue can be generated easily by the government.
Cost of revenue collection is also come down as there are no multiple taxes.
With the implementation of GST, a unified market is established in the country and make
way for foreign investments.
Procedures and tax rates are unified across the country and this brings harmony between
State Governments and Central government.

Benefits of GST to Consumers

The price of the products will be transparent as the input tax flows seamlessly from the
manufacturer to the dealer and to the retailer. As the cascading effect of tax is avoided,
the burden on the consumer will be reduced in the long run.
Small retailers will be either exempted from tax or will have to pay tax at lower rates thus
the goods sold by them will be at lower price bringing the benefits to the consumer.
 
Negative impact of GST

Though there is lot of positive impact of GST implementation, there exists negative
impact to some extent. Cost of few of the products has gone high compared to VAT
regime, because of grouping the goods and services. These are grouped into higher slab
group which had lower tax rate in earlier regime.
At the initial stage of implementation, revenue to the states has seen a downfall and states
faces loss of revenue.
Until the public and industries are used to the new method of tax rate, they are getting
confused to see too many tax rates and too many groups of products and services.
GST Impact on the auto sector
The automobile sector can be considered as the beneficial sector as the logistics cost is almost removed
which was the additional cost burdening the overall cost of the vehicles. With the introduction of GST, the
trade hurdles are removed and logistics cost is brought down.

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Multiple taxes at different stages is removed after implementing the GST. In the automobile industry, the
manufacturers will be located in few states and the auto parts manufacturing will be located at some other
states. All these to be transported to one place, manufacture the vehicle and then to be transported to
different states in the country for selling. This shows that lot of logistics is involved in the auto industry.
It can be said that the automotive sector is the one that is impacted positively with the implementation of
GST. Earlier there were multiple rates of excise duty, and that situation is changed to single tax, GST
which is lesser than the cumulative tax. The cost on the logistics which is 30 to 40 percent of total cost has
come down and this impacts the overall vehicle cost and the benefit is passed to the consumer.
Before the GST, different taxes that were imposed on automobile industry were excise duty, sales tax, road
tax.motor vehicle tax, VAT and registration duty etc. There were different tax rates at different states of the
country. Though all these taxes are subsumed into GST,

Before GST implementation and unification of taxes, we had a series of indirect taxes in
India, wherein every state had their own indirect tax structure. Now, after GST
implementation, all these taxes have been subsumed to one tax.

Impact of GST on automobile sector particularly is considered as a positive thing as

manufacturers of automobiles will have to pay reduced taxes and ultimately customers will
also be benefited. Before GST, various taxes such as sales tax, road tax, sector tax, VAT,
motor vehicle tax, registration duty, etc. were imposed. All of these have been subsumed
to GST on automobile services.

Automobiles sector is one of the sectors in India which manufacturer large number of cars annually.
Under the Goods and Services Tax (GST) several taxes imposed by the central and state government
such as road tax, excise, sales tax, VAT, motor vehicle tax and registration duty will be eliminated in
the new tax regime. Though still, there is some confusion due to different tax rates and exemptions
furnished by several states to the manufacturers/ dealers for producing bus/ bike/ cars. Recently, the
GST Council has increased cess on mid-sized to hybrid variant to luxury ones, from 15 percent to 25
percent. A new rule has been implemented in the Act in the motor vehicles has the capacity to
transport up to 13 people would impose 25 per cent cess. Under the new indirect tax regime,  which
subsumed several central and state levies in the biggest tax reform since Independence, cars imposed
highest GST rate i.e 28 percent tax.
Overall it is defined that the GST impact on the automobile industry is less than the previous tax
scheme due to the lowered tax scenario. As the automobile industry has already gone through some
tough situations like demonetization and after which emissions norms rule hit the grounds of
automobiles sector. It is now done that the industry will get benefits out of GST with minimum
hassle-free procedures and rate fixation across the nation.
As there will be more or less similar case for the smaller cars due to the analytics of rates comparing
from both the pre-GST and post-GST effects. The tax scenario has been adjusted in between 1 to 15
percent in which the small cars are being charged with 1% Cess rate with 28% GST while talking
about the middle sized cars it is being levied with the 3% Cess and for the luxury cars segment, it is
fixed at 25% Cess.
The two taxes charged to the end consumer on car and bikes previously were excise and
VAT, with an average combined rate of 26.50 to 44% which is higher than the GST rates of
18 and 28%. Therefore, there will be less burden of tax on the end consumer under GST.
Importers/dealers can cheer as they would be able to claim the GST paid on goods
imported/sold whereas previously, they were ineligible to claim the excise duty and VAT

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 paid. Excise paid on stock transfer would be covered by IGST under the GST law. Advance
received for supply of goods will also be taxed under GST. GST would help the
manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain
mechanism under GST.
GST on car and bikes are kept under the 28% bracket and a list of cess to be levied on a
different kind of automobile has also been declared by the Indian government. Cess has been
levied on different kind of automobiles ranging from 1 to 15%. We have created an
infographic for an understanding of different cess rates applied on different kind of
automobiles.

1. GST Becomes Positive For Commercial Vehicles Sales

As soon the GST got to see the day of light in India, there were some foremost benefits emerged in
the economy as well as in many of the sectors. One of them is automobiles sectors, including all the
segments, passengers as well as commercial vehicle segments. Also, the GST e-way bill made some
possibilities for the vehicles to roam free without any border checking.
In the same manner, the commercial vehicles are now way much ahead in productivity than earlier
situations. The logistics companies are considering to increase the inventory of the commercial
vehicle as the vehicles are now capable to take the much higher load and can transport eh cargo in
much less time than previously taken.
Binaifer Jehani, director, CRISIL Research stated that “As hubs get bigger, and more concentrated for
a few industries, preference will shift to much higher-tonnage HCVs (towards 37T multi-axle vehicles
and higher-tonnage tractor-trailers). Also, new product offerings by OEMs in the higher tonnage
intermediate commercial vehicles (ICVs) segment will continue to gain traction along the spoke
routes.”
The automobile manufacturer is also in discussion to make higher capacity vehicles to serve the
industry which is ready to offer an order of commercial vehicles in anytime soon. The sales trend in
the 35T, 40T, 49T tractor-trailer segm
ent has been providing much evident proof that the logistics industry will be improving soon.
With GST in the picture, good roads with better compliance procedure in the middle of the journey as
well as better technology has given a positive hint to the automobile manufacturers to make more and
more commercial vehicle. Tata Motors, Ashok Leyland, BharatBenz, Mahindra & Mahindra and VE
Commercial vehicles are some of the vehicle providers who are standing in the first row to cater the
evergrowing logistics industry.

1. Luxury Car
To understand the impact of GST on the industry as a whole, you need to
understand its effect on various business operations including production,
procurement, pricing and sales strategy.

2.Multi level claim for Input Tax credit on

purchases to simplify Logistics

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GST has been introduced to subsume the current indirect tax regime which used to
attract several duties and taxes on the sale of vehicles and spares and accessories. The
previous taxation regime included:

 Central Excise Duty

 Additional Excise Duty

 Infrastructure Cess

 CVD and Additional Import Duty

 VAT on intra State sales

 CST on Interstate sales

Currently all these resulted in cascading effect and increased the product price.
However now it is expected that product cost will be substantially reduced due to
seamless input tax credit (ITC) across the supply chain– from manufacturer, to
supplier, to agent, to final buyer all can claim input credit for tax paid on purchases.
Now the businesses would be able to claim ITC on various elements across the supply
chain like lease rentals, IT services and freight charges. The bottlenecks related to
logistics and transportation of units from one state to another state would also be
wiped off.

The reduced cost will in effect reduce the price and raise the demand and growth in
the sector.

The consumer in India is price savvy and companies never fail to use the event to
bring SALE and DISCOUNTS. Nevertheless post GST roll out, Maruti Suzuki, Tata
Motors, Toyota, Nissan and Renault India have also announced the discounts to pass
GST benefit to the end buyer.

3.Additional business overheads: Reducing

operations cost
With elimination of CST, companies need not maintain warehouses and C&F agents
at multiple state points. The warehousing infrastructure could be clubbed and lower
the operation costs in the supply chain.

Further with the inclusion of business overheads such as advertising, business

promotion under Input tax credit, the operation cost would be further reduced.

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 4.Impact on working Capital: Huge
Responsibility on Dealers
This would be a huge concern for the dealers as the supply is taxable in GST. On the
date of vehicle transfer, GST would be paid and it would lock the capital.

Now the dealer would be required to pay GST on the same day as he receives the
advance and it will hurt their outflow.

Another cash lock would be when the auto manufacturers would offer free
services/warranties as sales’ benefit to their customers (at the time of sale of vehicles).
They would pre-pay GST on the issue date of the coupon while customers would be
using the service on a later date.

5.Impact on Auto Valuation after GST: How

far the cost benefit could be passed to
customer?
The base GST rate has been set at 28% besides a cess (1% to 15%) on vehicles of
different categories and sizes. Together both will impact the end prices.

6.Two wheelers: Low Impact

The impact of GST is marginal on two wheelers sector as the levy is 28 % on engines
below 350cc and 31% on engine above 350 cc is 31%. Earlier the segment was
charged with 30.2 %. Largely the impact on prices of 81% of market would be
broadly unaffected.

7.Commercial vehicles: High impact on Mini

Buses, otherwise negligible effect
The commercial vehicle segment comprises commercial vehicles and three-wheelers.
Earlier the segment was paying 12.5 % Excise Duty + 1 % NCCD + 12.5 % VAT and
2 % CST which totaled to overall 30.2 % of tax. Herein three wheelers were excluded
of 1% of NCCD.

After GST, the overall impact on the segment is slight dip of 2.2 % as the levy is 28%.
So, the impact in valuation is again negligible. Similarly there would be no change in
the prices of tractors.

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The maximum effect would be visible on a new category being introduced for mini
buses ferrying up to 13 passengers. Besides the base rate, the passenger vehicle would
invite a 15 % cess on them shooting up the total GST to 43%, which is a major cause
of concern.

8.Passenger Vehicles: Enjoy big rides

Small cars (both petrol and diesel variants; engine below 1200 cc)
The economic car section would attract the base rate of 28% GST along a cess of 1%
and 3% which is smaller than current 31.4% to 33.5%. In effect the price of this
segment would be neutral or reduced marginally.

Bigger sedans and SUVs (1,500cc or more engine size, Over 4,000 mm length and
Over 170mm ground clearance)
In this segment the buyer will enjoy the price cut. The current taxation rate was 46.6%
to 55.3% which was much higher than the new GST rate of 28 % (+15 % cess).

9.Levy on Green Vehicles: A cause of concern

A 15% cess above the base GST rate of 28% on green vehicles is questionable as it is
far above the existing 30.3% rate. While the officials have claimed that smaller hybrid
vehicles are ruled out from additional cess of 15%.

10. Heavy taxation burden on Demo cars

GST demands a high tax rate on the demo cars. Currently, these vehicles were taxed at
0.5% while they are sold in the used car market after a year or so. With GST, tax rates
of 28% and 43% of the sale value would be levied.

11. Conclusion
All in all, the sentiment all across appears positive so far for the single manufacturer
levy. However it would be too early to pass the judgment. According to Moody’s
Investors Service, the Implementation of the GST is expected to lead to higher GDP
growth and increased tax revenues for Indian government. The success would largely
depend on the integrated compliance by all the players alike.

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 12.Impact of GST on Automobiles
sector
13. GST Impact on Automobile Sector

GST tax on automobiles has significantly reduced the cost of transporting goods, as

transportation anywhere in India doesn’t pass through check posts or various taxes. It has,
in fact, reduced the price of automobiles across the country when compared to the prices
before GST.

1. Reduced Operational Cost

CST or central state tax, which was applied when there was an interstate sale, has been
eliminated. There is no longer need for automobile companies to maintain different
warehouses at different locations. They can join various warehouses and enjoy low
operating cost. Further, taxes paid on advertising, promotions, and other overhead come
under input credit tax, which will lead to an additional decrease in operational cost.

2. Effect on Working Capital

Although operational cost is reduced, GST tax on automobiles has increased dealers'
concerns and here’s why this has happened:

Whenever any vehicle is transferred, GST is cleared and capital is locked as the supply is
taxable with GST. Now, the dealer needs to pay the GST on the exact day as the reception of
advance. However, this will also make dealers more cautious to avoid hurting their outflow.

Another way GST will affect dealers is by cash lock-on free services. Many automobile
manufacturers provide free services or warranty cards at the time of sales in form of
customer benefits. Dealers will have to pay the GST on these at the time of issue but the
customers may redeem these services any time later.

14. GST Rate on Automobiles

GST rate on automobiles is calculated with the fixed base rate of 28% on all cars with
additional cess slabs such as 1%, 3%, 15%, 17%, 20%, and 22%. Both the cess and base rate
together impacts GST rate on the automobile sector.

15. 1. Two-Wheelers

GST impact on two-wheelers is rather low as the 350 cc or below engine is taxed in 28% slab
and engine above 350 cc is charged with 31% tax.

16. 2. Commercial Vehicles

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Most of the commercial vehicles fall under 28% tax, which was earlier 30.2%. However,
minibuses have been greatly affected as these fall in 15% cess slab, which makes the tax
43%. While most commercial vehicles have seen a negligible effect after GST
implementation, GST on 13 passenger minibuses has raised concerns.

17. 3. Luxury Car

Luxury car tax scenario has seen good times with GST as these cars are taxed at 42-45%.
But, this was previously 50% or more than that. So, the overall tax has reduced for luxury
cars.

18. 4. Small Cars

Small cars have not been highly affected by GST implementation as earlier the tax rate was
29% which included every tax including VAT. But, after GST, it is 28% and cess is 1%.

19. 5. Hybrid Cars

The major GST effect on automobile industry can be seen in hybrid cars, as these are
taxed 28% with additional 15% cess. Previously, hybrid cars were taxed at 30% only.

20. 6. Spare Parts

Spare parts are taxed with the highest rate in the slab of 28% while previously it was just
12%, which makes the current tax charges more than double of what was charged before.

21. Check Out the Before and After GST Tax Rates on
Automobile Industry

Category Before GST After GST

Two wheelers 30.2% 28-31%

Commercial vehicles 30.2% 28%

Luxury cars 50% 42-45%

Small cars 24-25% 29-31%

Hybrid cars 30% 43%

Spare parts 12% 28%

22. GST: A Positive Impact

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 The overall effect of GST on the automobile industry is positive, as, on a whole, it has
reduced the rate. Further, GST has enhanced the manufacturing of automobiles by reducing
taxes to one and made the taxation system less complicated than before. For obtaining
detailed knowledge of GST's impact on other sectors and end users, check
out gstinindia.in blog.

The automobile sector is mainly comprised of commercial and non-

commercial vehicles, with the former consisting of vehicles like three-
wheelers, minibuses, etc. and the latter comprising of personal vehicles
(including SUVs, budgeted cars, luxury cars, etc). There exist different tax
slabs for both the sections and we’ll be elaborating on the same through
this post.

Firstly, we’ll look at the impact of GST on the commercial vehicles category
and following that, we’ll focus on the non-commercial category. Here goes:

23. Impact of GST on Commercial Vehicles

The commercial vehicle segment, comprising of vehicles used for

transportation of goods and people, vehicles used for execution of
business services and three-wheelers has been heavily affected by GST.
Earlier, the segment was paying 12.5% Excise Duty + 12.5% VAT and 2 %
CST as well as other taxes which totalled to overall around 30-33% of tax.
After the implementation of GST, the overall impact on the segment is a
slight dip as the tax levied is now reduced to 28%. So, the impact in
valuation is relatively negligible.

However, there would be no change in the prices of tractors. As agriculture

is considered the backbone of the Indian economy, the GSTN Council
(Goods and Services Tax Network) has aimed to provide major relief to the
farming sector. GST tax rate on tractors and its parts has seen no change
in the pre and post-GST scenario, as it continues to remain at a rate of 18%.

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 The maximum effect would be visible on the new category introduced, of
mini-buses (buses with a capacity of carrying up to 13 seated passengers).
Besides the base rate, this passenger vehicle segment would invite a 15%
cess on them, which shoots up the total GST rate to 43%. This is a major
cause of concern to the economy as it will not only impact businesses
using such transport vehicles but also the end-consumer as their cost-of-
consumption, i.e. ticket prices wherever applicable, will increase.

For example, consider a goods transport agency carrying goods from one
location to another. The increased costs associated with the purchase of
transport vehicles and their maintenance will inevitably inflate the selling
price of goods, ultimately affecting the end-consumer. This is a major
concern which the GSTN Council needs to resolve.

24.  
Impact on Non-Commercial Vehicles

As compared to commercial vehicles, GST has had relatively low impact on

non-commercial vehicles. We’ll be elucidating its effect on small-budget
cars (passenger cars costing under Rs 10 lakh), luxury cars, SUVs and
further detailing how engine capacity relates to the tax rate levied on the
vehicles.

 Small-Budget Cars (Both petrol and diesel variants, costing under 10

lakh INR):

This section of cars would attract the base rate of 28% GST along
with a cess of 1% and 3% which is smaller than the taxes that were
applicable in the pre-GST scenario which were around 30-33%. This
reduction of levied taxes is very beneficial to middle class families
who wish to buy small-budget cars.

 Effect of Engine Capacity on the Tax Levied:

Further, the automobile sector has tax implications based on the

engine capacity of the vehicles. For example, for cars having an
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 engine capacity < 1200cc, the GST levied will be 28% with 1% cess
whereas for motorcycles/small cars/single aircraft engines or
chartered planes < 1500cc, GST levied will be 28% along with 3%
cess. For larger vehicles such as Sport Utility Vehicles (SUVs), etc. >
1500cc, GST levied will be 28% along with 15% cess.

 Effect of GST on Hybrid Cars:

A drawback is seen in the case of hybrid cars. With global concerns

such as the rise of pollution, damage to the environment, and climate
change, the GSTN council has not given importance to the sheer
need for hybrid cars by levying GST tax rate of 43% (28%, with 15%
cess), which is higher than the tax on smaller cars. In comparison,
pure electric vehicles attract a relatively low GST rate of only 12%.

 Effect on Luxury Vehicles/SUVs:

In the recent amendment by the GSTN council, luxury cars have seen
significant changes in terms of taxation. The council has increased
the cess rate from 15% to 25%, escalating the total GST tax rate to
53%, which has lead to decrease of in sales in the luxury segment of
the automobile sector.

The levy of GST in this segment is similar to the pre-GST scenario. Though
Lok Sabha has passed this amendment, it is yet to be implemented.

25. Transactions Involving Transfer of Vehicle’s Ownership:

Transfer of vehicles to other people will be liable for GST, irrespective of

whether the transaction is intra-state or inter-state.

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 In the case of businesses trading in second-hand goods, valuation rules
under the GST regime state that the value of supply will be the difference
between selling and purchase prices. Additionally, for cases involving
negative value of supply, there will be no taxable component. These
aspects of GST will surely have a positive impact in this industry, because
GST needs to be paid only on the difference value of the transaction.

It has been specifically provided in the valuation rules that where a taxable
supply is provided by a person dealing in buying and selling of second hand
goods, then the value of supply shall be the difference between the selling
price and purchase price and where the value of such supply is negative it
shall be ignored. This shall very positively impact this industry as GST
needs to be paid only on the difference value.

26. Impact on Valuation

In the pre-GST scenario, the various commissions received from

manufacturers such as ‘Extended Warranty’ or ‘Roadside Assistance’,
Service Tax was paid only on the commission component. However, in the
GST regime such tax treatment is not acceptable, and dealers will have to
pay GST initially on the entire value of the warranty receipts. The amounts
charged by the manufacturer can later be taken as a credit.

Conclusion

For the businesses in the automobile sector, GST has been good from a
compliance standpoint. The previous state-wise compliance system has
now been replaced with a single window for all compliance-related matters.

Multiple taxes have been subsumed under GST such as CST, VAT, Service
Tax, Entry Tax, Excise Duty, etc. Now, corporates need to deal only with
GST officers rather than going to different officers for the various tax
departments.

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From the Government’s point of view, it has also been beneficial because of
GST revenue sharing between the Centre and States.

As the premise of GST states that it is a consumption-based tax rather than

an origin-based one, it will increase the revenue of many states because
the number of consumers (from States across the country) are more than
the manufacturers (who are typically located in clusters in few states).

Finally, from the end-consumers’ point of view point, GST has resulted in a
mixture of positive and negative impact. Because, on one hand we have an
increased cost associated with commercial vehicles which consequently
inflates the selling price of daily consumed goods. And on the other hand,
the GSTN Council simplified the process of input credit mechanism on
manufactured goods and traded goods through the Anti-Profiteering Act,
thus providing relief to the end-consumers. This will encourage
corporates/businesses to pass on the benefit of the input tax credit to the
common man on large scale by reducing the maximum retail prices of
goods.

In the non-commercial vehicle space, the varying rates based on the

different categories and engine-capacities of cars has been structured
bearing in mind the household incomes of different sections of society.

There are multiple future implications which an also be traced when we talk
about GST’s impact on the automobile sector. A few of them are as
follows:

 The cheaper cost of vehicles will fuel their demand in the market and
consequently boost manufacturing growth. Also, with the GST rates
of taxation being the same across the country, there will be no
differentiation of tax cost for the consumer when procuring the
vehicles from another state. This will reduce incidences of tax
evasion which occur due to consumers buying vehicles from the
states other than where they reside.

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  With GST, things like multiple levels of taxation, elaborate tax
compliance obligations and cascading taxes will be a thing of the
past. A simplified and fully-automated tax mechanism will ensure
better compliance.
 Another thing to note is that GST will reduce the cost of
manufacturing due to the subsuming of different taxes levied in the
past. Since the taxes will be charged on supply and consumption
state rather than the origin state, it would give a boost to the growth
rate of the automobile industry.
 Now with CST out of the way, the companies will not need to
maintain warehouses in multiple states. This will help in
consolidating the warehousing structure and can also lower down
the operational 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.

References:
[1] GST India (2015) Economy and Policy.
[2] Mehra P. (2015) Modi govt.’s model for GST may not result in significant growth push.
The Hindu
[3] Garg, Girish (2014).Basic Concepts and Features of Goods and Services Tax in India.
International Journal of Scientific research and Management, 2(2),542-549
[4] Kumar, Nitin (2014).Goods and Services tax in India. A way forward. Global Journal of
Multidisciplinary Studies,3(6),216-225
[5] The Institute of Companies Secretaries of India (ICSI)
(2015).https://www.icsi.edu/Docs/website/GST_referencer.pdf
[6] http://www.usstaad.com/Blog/news-reviews/impact-gst-car-
prices/http://www.financialexpress.com/auto/car-news/how-gst-will-affectyour-next-car-
purchase-maybe-you-shouldnt-buy-one/338906/
[7] http://www.siamindia.com/economic-afairs.aspx?mpgid=16&pgid1=18&pgidtrail=21

Salient features of GST

1. GST would be a
comprehensive indirect
16
taxon manufacture, sale and
consumption of
goods and services throughout
India, to
replace taxes levied by the
central and state
Governments.
2. This method allows GST-
registered busine-
sses to claim tax credit to the
value of GST
they paid on purchase of goods
or services
as part of their normal
commercial activity.
3. Taxable goods and
services are not

17
distinguished from one another
and are taxed
at a single rate in a supply
chain till the
goods or services reach the
consumer.
4. Administrative
responsibility would
generally rest with a single
authority to levy
Salient features of GST
1. GST would be a
comprehensive indirect
taxon manufacture, sale and
consumption of
goods and services throughout
India, to

18
replace taxes levied by the
central and state
Governments.
2. This method allows GST-
registered busine-
sses to claim tax credit to the
value of GST
they paid on purchase of goods
or services
as part of their normal
commercial activity.
3. Taxable goods and
services are not
distinguished from one another
and are taxed
at a single rate in a supply
chain till the

19
goods or services reach the
consumer.
4. Administrative
responsibility would
generally rest with a single
authority to levy
Salient features of GST
1. GST would be a
comprehensive indirect
taxon manufacture, sale and
consumption of
goods and services throughout
India, to
replace taxes levied by the
central and state
Governments.
2. This method allows GST-
registered busine-
20
sses to claim tax credit to the
value of GST
they paid on purchase of goods
or services
as part of their normal
commercial activity.
3. Taxable goods and
services are not
distinguished from one another
and are taxed
at a single rate in a supply
chain till the
goods or services reach the
consumer.
4. Administrative
responsibility would
generally rest with a single
authority to levy
www.icra.in
21
www.gst.in

22