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Final report

Chapter No. Topic Pg. No
Abstract i
1 Introduction 4
2 Objective of Study 5
3 Timeline of GST 6
4 Meaning, Origin ...
Figure Table
Figure No. Topic Page No.
Difference between the total price before and after GST
GST stands for “Goods and Services Tax”, and is proposed to be a
comprehensive indirect tax levy on manufacture, ...
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Final report

  1. 1. CONTENT Chapter No. Topic Pg. No Abstract i 1 Introduction 4 2 Objective of Study 5 3 Timeline of GST 6 4 Meaning, Origin and types of GST 7 4.1 Justification of GST 8 4.2 How GST is different from current VAT 8 5 Saline Features of the proposed GST bill 9 6 Present Indian indirect taxation structure and its limitations 10 7 Central and state taxes to be subsumed under GST 10 8 How will GST work 11 9 Impact of GST on pricing of products as compared to current scenario 12 10 Impact of GST on automobile market 13 10.1 Impact of GST on car price in India (2017 onwards) 14 10.2 Implication of GST on Indian car market 15 11 Impact of GST on Indian Economy 16 11.1 Benefits of proposed GST 16 11.2 Benefits of GST on Stake Holders 17 11.3 Negative aspects of proposed GST 17 11.4 Challenges in implication of GST 17 11.4.1 State reluctant to implement GST 17 11.4.2 Legislative challenge/ Federal character 18 11.4.3 Infrastructure 18 11.4.4 Rate of Tax 18 12 GST around the World 19 13 Negative implication of GST 20 14 GST review by different organizations 20 14.1 Impact of GST on automobile sector 20 14.2 Job work and GST 21 14.3 Credit on vendor tooling 22 14.4 Time of supply for payment of GST 22 14.5 Dealers Incentive schemes and impact of GST 22 14.6 Lack of clarity 22 14.7 ICRA duty structure for automobile OEM’s under 23 14.8 Impact of GST logistics 25 14.9 Consolidation of warehousing in favor of bigger trucks but MCVs won’t get completely marginalize. 26 14.10 Sector Where MCV’s are predominantly used 26 15 Conclusion 27 Reference Annexure
  2. 2. Figure Table Figure No. Topic Page No. 1 Difference between the total price before and after GST implementation 11 2 Comparison of Hatchback, Sedan and SUV’s after GST implication 15 3 GDP composition in March 2012 18 LIST OF TABLES Table No. Topic Page No. 7.1 Tax collected by Central and State government 9 8.1 Working of GST 10 10.1 Existing scenario (Pre-GST) 12 10.2 Post GST Scenario 13 10.3 Implication of GST on Indian car market 14 12.1 GST around the world 18 14.1 ICRA duty structure for automobile OEM’s under current and GST scheme 22 14.2 Growth estimate and likely drivers for year 2017 23
  3. 3. ABSTRACT GST stands for “Goods and Services Tax”, and is proposed to be a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level. It will replace all indirect taxes levied on goods and services by the Central Government and State Governments. GST is the only indirect tax that directly affects all the sections of our economy. India has been trying to implement the Goods and Services Tax (GST)for last few years but due to political and state governments autonomy issues the Federal government has been unable to make it law. Several countries has implemented this tax system followed by France, the first country introduced the GST in 1954. In India the proposed GST would be implemented from 1 April 2016. For this the Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 was Introduced in the Lok Sabha. The Bill was passed by the Lok Sabha on 6 May 2015 and now the bill has been approved by Rajya sabha and the President also. India is a federal democratic and therefore the GST will be implemented parallel by the Central and State governments as CGST and SGST respectively. The present report focused on explaining the concepts of GST and its evolution in India. Then it discussed the salient features of proposed GST and how does it works. It highlights the benefits of the GST for Indian economy. This report also shows the challenges to implement GST and how it can be overcome. KEYWORDS: GST (Goods and Services Tax), Indian Tax Scenario, CGST, Input tax credit (ITC), GST, SGST, VAT
  4. 4. 1. INTRODUCTION India as world’s one the biggest democratic country follows the federal tax system for collection of various taxes. The centre and the states are empowered to levy respective taxes as per the constitution of India. The Value Added Tax (VAT) when introduced was considered to be a major improvement over the pre-existing central excise duty at the national level and the sales tax system at the state level. Now the Goods and Services Tax (GST) will be further significant breakthrough towards a comprehensive indirect tax reform in the country. In 2000, the Vajpayee Government started discussion on GST by setting up an empowered committee. But an announcement to GST for the first time was made by Palaniappan Chidambaram, the Union Finance Minister, during budget of 2007-08 that it would introduced from 1 April 2010 and that the empowered committee of State Finance Ministers, on his request would work with the Central Government to prepare a road map for introduction of GST in India. After this announcement, the Empowered Committee of State Finance Ministers decided to set up a Joint Working Group on 10 May 2007, with the Adviser to the Joint Working Group, after intensive internal discussions as well as interaction with the experts and representatives of Chambers of Commerce and Industry submitted its report to the Empowered Committee on 19 November 2007. Based on inputs from Government of India and states, the EC released its First Discussion Paper on Goods and Services Tax in India on 10 November 2009 with the objective of generating a debate and obtaining inputs from all stakeholders. Mr. Pranab Babu, (Hon’ble Union Home Minister of Finance Pranab Mukherjee) has made a remark in his Budget Speech of 2010 that an efforts will be made to introduce GST in India from April 2011. This deadline was subsequently extended to April 2012. The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014 was introduced in the Lok Sabha by Finance Minister Mr. Arun Jaitley on 19 December 2014. The Bill was passed by the House on 6 May 2015, receiving 352 votes for and 37 against.
  5. 5. 2. OBJECTIVE OF THE STUDY  The study has been geared towards achieving the following objectives: 1. To understand the concept of Goods and Service tax across India in Automobile industries. 2. To examine the salient features of Goods and services tax and 3. To know the Impact of GST on Indian Economy and challenges in implementing GST in Automobile Sector.
  6. 6. 3. TIMELINE OF GST IN INDIA 2003 2005 2009 2011 2012 2013 2014 2016  Kelkar Task Force suggested a GST bill based on VAT principle  Proposal to introduce GST bill by 01-April- 2010 was mooted in the Budget Speech for the FY 2006-07  Preparing a Road Map and Design for the implementation of GST was assigned to the EC   EC released its first discussion paper on GST  A Joint Working Group consisting of Officers from Central from central as State was Constituted.  Amendment of Constitution to enable introduction of GST, a Constitution Bill was introduced   Committee of GST Design was constituted  Committee did a detailed discussion on GST design and submitted its report to EC  A draft GST Bill was sent to the EC after approval of a new govt.  The Cabinet approved the Introduction of GST Bill  Bill was introduced in Lok Sabha   Bill passed by Rajya Sabha  Approved by President of India
  7. 7. 4. MEANING, ORIGIN AND TYPES OF GST The introduction of VAT was one of the major reforms in indirect taxes in India at the state & Central level. If that was the major reforms in indirect taxes then GST would be advancement over the current existing system. Goods and Services Tax (GST) is a broad based and a single comprehensive tax levied on goods and services consumed in country. Goods and Services Tax (GST) is a comprehensive tax levy on manufacture, sale and consumption of goods and services at the national level. GST is similar to the VAT system which is a value added tax on goods with an Input Tax Credit (ITC) mechanism but GST also includes services. Thus GST would be applicable on supply of goods and services as against the present concept of tax. GST is a value added tax on goods and services that is paid by the final consumer while the retailer will be taking credit of the tax he has paid while buying goods for retailing. So in this all the services of retailer or the chain behind him is taxed apart from the actual value of production of that good. This can be better understand with the help of an example, suppose that there is a chain of manufacturer, wholesale dealer and the retailer and the GST is 10%. Suppose the manufacturer purchases the inputs worth Rs. 100 for producing a good worth Rs. 140. He will pay net GST of Rs. 4 by taking the tax credit of Rs. 10 paid on the inputs. Similarly the wholesaler who buys this good and sells it for Rs. 150 will pay net GST of Rs. 1 and the retailer who sells it for Rs. 170 will pay net GST of Rs. 2 by taking the tax credit for his purchase which comes to be Rs. 15. In the other words the GST is designed as a value-added tax, which means starting from the manufacturer to the wholesaler and then retailer, each person will pay tax only on the value addition done by him. So, suppose a manufacturer purchases inputs worth Rs. 40 and then produces a good worth Rs. 100, then with a 10 % GST rate, his tax liability will turn out to be only Rs. 6 (10 % of 60). This is because he gets to set-off the tax paid on the inputs against the tax he pays on the final goods produced. An integrated scheme of taxation that does not discriminate between goods and services and is part of the proposed tax reforms that centre on evolving an efficient and harmonized consumption tax system in the
  8. 8. country. GST was originated in France in 1954 and today it has spread to over 150 countries. The taxable event for the GST will be the supply of goods and the supply of services. The current taxable events such as manufacture, sale of goods and rendering of services will not be relevant for GST. GST is of two types: a) Single GST and b) Dual GST. Many countries have unified GST. However, in countries like Brazil and Canada there is dual system wherein GST is levied both by the Central Government and the State Governments. In India due to federal structure there shall be dual GST system. This will comprise of: a) Central GST (CGST) which is levied by centre. b) State GST (SGST) which is levied by state. c) Integrated GST (IGST) which is levied by central Government on inter-state supply of Goods and Services. 4.1 JUSTIFICATION OF GST Despite the success with the VAT, there is still certain shortcoming in the structure of VAT both at the Central and at the State level. GST has been designed to overcome from all shortcomings of VAT because GST is not simply VAT plus service tax but an improvement over the previous system of VAT and disjointed service tax. 4.2 HOW GST IS DIFFERENT FROM CURRENT VAT The mechanics of applying VAT and GST are basically the same. But there are following fundamental differences between them: 1. VAT is levied on goods; whereas GST on both goods and services as it is evident from the name. 2. GST would have a uniform rate in all the state which VAT lacks as each state levies its own rate of duty for each goods. 3. Input credit can be set-off only against the goods sold within the state; whereas in case of GST not only you can set-off input credit against goods sold within the country but also against the services.
  9. 9. 5. SALIENT FEATURES OF THE PROPOSED GST BILL Followings are the salient features of GST Model: 1. The GST shall have two components: one levied by the Centre (hereinafter referred to as Central GST), and the other levied by the States (hereinafter referred to as State GST). Rates for Central GST and State GST would be prescribed appropriately, reflecting revenue considerations and acceptability. 2. The Central GST and the State GST are to be paid to the accounts of the Centre and the States separately. 3. The Central GST and the State GST would be applicable to all transactions of goods and services made for a consideration except exempted goods and services, goods which are outside the purview of GST. 4. Since the Central GST and the State GST are to be treated separately; taxes paid against the Central GST shall be allowed to be taken as input tax credit (ITC) for the Central GST and could be utilized only against the payment of Central GST. The same principle will be applicable for the State GST. 5. The administration of Central GST to the Centre and for State GST to the States would be given. 6. To the extent feasible, uniform procedure for collection of both central GST and the State GST would be prescribed in the respective legislation for the Central GST and the State GST. 7. The tax payer would need to submit periodical returns, in common format as far as possible to both the Central GST authority and to the concerned State GST authorities. 8. Each tax payer would be allotted a PAN-Linked taxpayer Identification number with a total of 13/15 digits. This would bring the GST PAN-Linked system in line with the prevailing PAN-Based system for Income Tax, facilitating exchange and taxpayer compliance.
  10. 10. 6. PRESENT INDIAN INDIRECT TAXATION STRUCTURE & ITS LIMITATIONS Presently India has a dual tax system for taxation of Goods and Services. The tax system is described by the Central Taxes and State Taxes, Which may be further described as Excise Duty, Service Tax, VAT and Custom Duty. India has VAT mechanism which was introduced in 2005 but this system suffers from limitations. Due to non-availability of tax credit for inter-state transactions of goods, consumer suffers double taxation burden of VAT. 7. CENTRAL AND STATE TAXES TO BE SUBSUMED UNDER GST The following taxes currently levied and collected by the Centre Government and the State Governments are to be subsumed with the implementation of GST: Central Taxes to be subsumed State Taxes to be subsumed •Central Excise duty •Additional duties on excise •The Excise Duty levied under the Medicinal and Toiletries Preparation Act •Service Tax Surcharges, and Cesses • VAT / Sales tax • Entertainment tax (unless it is levied by the local bodies) • Luxury tax • Taxes on lottery, betting and gambling State Cesses and Surcharges in so far as they relate to supply of goods and services • Entry tax not in lieu of Octroi. Table 7.1: Tax collected by Central and State Government
  11. 11. 8. HOW WILL GST WORK Let us understand the working of GST of a manufactured commodity from point of view of a Manufacturer, wholesaler, retailer and final consumer: Assuming GST rate @ 10% Table 8.1: Working of GST 8.1 MANUFACTURER: Manufacturer makes a value addition of Rs. 30 on his purchase worth Rs. 100 of input of goods and services used in manufacturing process. The manufacturer will then pay net GST of Rs. 3 (13-10) after setting-off Rs. 10 as GST paid on his inputs (i.e. Input Tax Credit) from gross GST of Rs. 13. The manufacturer sells the goods to the wholesaler. 8.2 WHOLESALER: When the wholesaler sells the same goods after making value addition of Rs. 20, he pays net GST of only Rs. 2(15-13), after setting-off of Input Tax Credit of Rs. 13 from the gross GST of Rs. 15 to the manufacturer. The wholesaler sells the goods to retailer. 8.3 RETAILER: When the retailer sells the same goods after value addition of Rs. 10, he has to pay net GST of only Rs. 1 (16-15), after setting-off Input Tax Credit of Rs. 15 from his gross GST of Rs. 16 to the wholesaler. The retailer sells the goods to consumer. Thus the manufacturer, wholesaler and retailer have to pay only Rs. 6 (i.e. Rs. 3+ Rs. 2 +Rs. 1) as GST on the value addition along the entire value chain from producer to the retailer after setting-off GST paid at the earlier stages. So finally consumer has to pay 160+160*10% = 176 Rs. For goods he bought or services he has hired/enjoyed. STAGE OF SUPPLY CHAIN PURCHASE VALUE OF INPUT VALUE ADDITION VALUE OF SUPPLY RATE OF GST GST ON INPUT ITC NET GST = GST on OUTPUT - ITC MANUFACTURER 100 30 130 10 % 13 10 13-10=3 WHOLESALER 130 20 150 10 % 15 13 15-13=2 RETAILER 150 10 160 10 % 16 15 16-15=1
  12. 12. 9. IMPACT OF GST ON PRICING OF PRODUCTS AS COMPARED TO CURRENT SCENARIO There is a clear difference between the price of the product calculated under VAT system and the price of the product calculated under the proposed Goods and Services Tax (GST) system. Let us take an Example to understand this clearly: Fig 1: Difference between the total price before and after GST In the above example, you can note that the tax paid on the sale within the state can be claim against the tax paid on sale outside state in GST system, which is not possible in the current tax system. The credit of CGST cannot be taken against the SGST and the credit of SGST cannot be taken against the CGST but both credits can be taken against IGST.
  13. 13. 10. IMPACT OF GST ON INDIAN AUTOMOBILE MARKET Passenger Car Buying is one sector where there is regime of high taxes. For calculating Prices at Various levels:  Excise Duty-(12% to 27%)  Infrastructure Tax-(1% to 4%)  VAT Duty-(12.5% to 14.5%)  Octroi/Entry Tax-(4% to 6%) • EXISTING SCENARIO (PRE-GST) Vs POST GST SCENARIO EXISTING SCENARIO (PRE-GST)  Excise Duty 12 24 27 • Small Cars under 4m • Car with Length>4m but Engine<1.5 Ltr • Car with Engine >1.5 Ltr  Infrastructure 1 2.5 4 • Petrol Car with <1.5 Ltr • Diesel Cars • High Capacity Cars  VAT  Entry  RoadTax 12.5-14.5 4-5 3-24 • State to State irrespective of Vehicle Class • Additional Entry Tax • Based on Vehicle Pricing Table 10.1: Existing Scenario (Pre-GST)
  14. 14. POST GST SCENARIO COMPONENT RATE % CLASSIFICATION GST 18-20 40 • Cars with Length < 4 Meter and Engine < 1.5 Litre • All Other Cars with Length > 4 Meter ROAD TAX 3-24 •Based on Vehicle Pricing Table 10.2: Post GST Scenario 10.1 IMPACT OF GST ON CAR PRICES IN INDIA (2017 Onwards) The Impact of GST on various Segments of Car:  Small Cars (Sub 4m Segments)- Biggest Beneficiary. Likely to be Economical to tune of 5%-10%.  Mid Sedan, Mid- SUV Range (Engine<1.5 L)- Prices would likely Increase by 2% to 3%.  Luxury High End Cars (Engine >1.5 L)- Prices would almost be same or may come marginally by 1% or so.
  15. 15. 10.2 Implication Of GST On Indian Car Market: Segment Excise NCCD +AutoCess VAT Total CGST SGST Total Difference Smaller passenger cars < 1200 cc 12.5 % 1.1 % 14 % 28.1 % 9 % 9 % 18 % 10.1 % Mid-sized >1200cc and < 1500 cc 24 % 1.1 % 14 v 39.1 % 9 % 9 % 18 % 21.1 % Luxury passenger cars > 1500 cc 27 % 1.1 % 14 % 42.1 % 20 % 20 % 40 % 2.1 % SUV’s >1500 cc and > 4 m and 170 mm Ground clearance 30 % 1.1 % 14 % 45.1 % 20 % 20 % 40 % 5.1 % Table 10.3: Implication of GST on Indian car market Fig. 2 Comparison of hatchback, Sedan and SUV after implication of GST
  16. 16. 11. IMPACT OF GST ON INDIAN ECONOMY Like every coin has two sides; even GST will probably have its own Positives and negative impacts. 11.1 BENEFITS OF PROPOSED GST; 1. The main reason to implement GST is to abolish the cascading effect on tax. A product on which excise duty is paid can also be liable to VAT. Suppose a product A is manufactured in a factory. As soon as it releases from factory, excise duty has to be paid to central government. When the product A is sold in same state then VAT has to be paid to the State Government. Also no credit on excise duty paid can be taken against output VAT. This is termed as cascading effect since double taxes is levied on same product. 2. GST will lead to more transparent and neutral manner to raise revenue. 3. Price reduction as credit of input tax is available against output tax. 4. Simplified and cost saving system as procedural cost reduces due to uniform accounting for all types of taxes. Only three type of account; CGST, SGST & IGST have to be maintained. 5. GST is structured to simplify the current indirect system. It is s long term strategy leading to a higher output, more employment opportunities and economy boom. 6. It is beneficial for both economy and corporations. The reduced tax burden on companies will reduce production cost making exporters more competitive. 7. GST will reduce transaction costs for taxpayers through simplified tax compliance. 8. It will result in increased tax collections due to wider tax base and better conformity. 9. Overall introduction of Goods and Services Tax (GST) will be panacea for Indian economy. Studies show that this would instantly spur economic growth. Introduction of GST would also make Indian products competitive in the domestic and international markets. From the consumer point of view, the biggest advantage would be in terms of a reduction in the overall tax burden on goods, which is currently estimated at 25%-30%. Last but not the least, this tax, because of its transparent character, would be easier to administer.
  17. 17. 11.2 BENEFITS OF GST ON STAKEHOLDERS 11.2.1 Forthe Centre and the States: According to experts, by implementing GST, India will gain $ 15 Billion a year. This is because it will promote more exports, create more employment opportunities and boost growth. 11.2.2 For individuals and companies: In the GST system, taxes for both Centre and State will be collected at one point of sale. Both will be charge on manufacturing cost. Individuals will be benefited by this as prices are likely to come down. Lower price mean more consumption, more consumption means more production and thereby helping in the growth of the companies 11.3 NEGATIVE ASPECTS OF PROPOSEDGST There are following negative aspects of Goods and Services Tax (GST): • Majority of dealers are not covered with the central excise but are only paying VAT in the state. Now all the VAT dealers will be required to pay Central Goods and Services Tax (CGST). • GST is referred as single taxation system in India but in reality it is a dual tax in which both state and centre collects separate tax on single transaction of sale & service. However GST has some negative aspect but at the end it will boost economy. 11.4 CHALLENGES IN IMPLEMENTATION OF GST There are following challenges in implementing GST throughout the country: 11.4.1 Statereluctantto implementGST: Under GST the taxes would be levied on the basis of destination principle (i.e. taxed in state where goods & services are sold /rendered) and state government is fearful of losing money. Central government should come up with revenue sharing model to solve state’s grievances.
  18. 18. 11.4.2 Legislative challenge/ Federal character: India is a federal democratic country where both Centre and State Government Exists. Any change in the taxation powers of federal or state government requires amendments of Indian Constitution by two third majorities of its members present and it is also to be ratified by more than 50% state legislative assemblies. Centre Government has already amended “The Constitution (One Hundred and Twenty Second Amendment) Bill, 2014” in Lok Sabha. Now it has to be approved by Rajya Sabha. Central Government should take all opposite parties into confidence and get this Bill passed by Rajya Sabha. Moreover State governments should be convinced to adopt GST bill in their respective states. 11.4.3 Infrastructure: IT infrastructure is a key component for success of GST. Without a well-designed and well-functioning IT system, the benefits of GST will remain elusive. In case of VAT also Centre had broad IT infrastructure, but it was a major issue with the states. Therefore both Centre and State needs to develop a High standard IT infrastructure to get the fruits of Goods and Services Tax. 11.4.4 Rate of Tax: The major challenge in implementing GST is to determine the rate of tax. GST rate should be such rate which generates at least the same revenue to the state and Centre as generated in current tax structure. Till now there has been no official announcement regarding GST rates in India but Finance Minister said that GST Rate should be around 18%. Fig. 3: GDP composition in March, 2012
  19. 19. 12. GOODS AND SERVICES TAX (GST) AROUND THE WORLD France was the first country to introduced GST in 1954. Till now more than 150 countries have adopted Goods and Services Tax successfully. Following table shows the country adopting GST with the rate of GST. COUNTRY YEAR OF IMPLEMENTATION CURRENT RATE IN % AUSTRALIA 2000 10 FRANCE 1954 19.6 BELGIUM 1971 21 NEW ZEALAND 1989 15 SWEDAN 1969 25 GERMANY 1968 19 DENMARK 1967 25 SINGAPORE 1993 7 THAILAND 1992 7 INDONESIA 1984 10 Table 12.1: GST around the World 27 % rate of GST has been proposed in India. But Mr. Arun Jaitley (Finance Minister) in Lok Sabha said that 27% will be too high the actual figure will decided by GST council and it should around 18%.
  20. 20. 13. NEGATIVE IMPLICATIONS OF GST 1. VAT and Service tax on some products may be higher than the current levels. 2. Most of the developed economies use a single GST and not a dual GST. Hence, it will still be a very complicated billing and reconciliation IT machinery. 3. Doesn't include petroleum and alcohol products. Heavy loss to the exchequer. 4. It requires strong IT (Information Technology) infrastructure at grass-root levels. India essentially lacks this. This factor is going to be the bottleneck, if not addressed well in advance. 5. Very high rates 16% compared to current 12.5 % VAT.
  21. 21. 14. GST REVIEW BY DIFFERENT ORGANIZATIONS • REVIEW BY PWC & ICRA-IMPACT OF GST ON AUTOMOBILE SECTOR The automobile industry has its own complexity such as longer investment cycle, development of vendors / part makers, substantial outsourced processes, unique market approach, etc. 14.1 IMPACTOF GST ON AUTOMOBILE SECTOR: VALUATION: The Model GST law continues with the concept of ‘transaction value’ which is a welcome measure. The transaction value shall be adopted where the supplier and buyer are not related, and price is the sole consideration for sale. Some of the significant valuation points arising out of the draft law are as follows: 1. Likely Re-Birth of FIAT Principles 2. Inclusion of Subsidy. 3. Discount in Invoice and normal trade practice 4. Post Supply Demands 5. Sale through Marketing Companies 14.2 JOB WORK AND GST: The Model GST law treats ‘job work’ as a service and seeks to maintain the existing excise procedures for job work transactions, i.e. non-taxability of job work transaction and providing credits to the principal for supplies to job worker, 180 days condition for bringing back goods after job work, etc.
  22. 22. 14.3 CREDIT ON VENDOR TOOLING: Under the Model GST law, the definition of ‘capital goods’ covers only those goods which are used at the place of business of supply of goods. Thus, only goods which are used in the place of business of OEM seem to be eligible for GST credit in the OEM’s hands. 14.4 TIME OF SUPPLY FOR PAYMENT OF GST: The Model GST law specifies that the time of supply of goods shall be at the earliest of • Date of removal of goods • Date of which goods are made available to recipient • Date of invoice • Date of receipt of payment with respect to the supply Date of receipt of goods as shown in the books of accounts by recipient. 14.5 DEALER INCENTIVE SCHEMES AND IMPACT OF GST: The Model GST law does not provide as to whether these incentives or discounts are subject to GST. Further, since the original supply would have already suffered GST and the buyer would have taken the input tax credit, the issue of whether these incentives/ discounts would impact the price and credits, or will these be kept out of GST (in the VAT chain), needs to be addressed. 14.6 LACK OF CLARITY: The Government has indicated its intention to subsume all central and State cesses into GST. However, on a reading of the Model GST law and the constitutional amendment bill, it is not clear as to whether the cesses levied under different legislations (for specified
  23. 23. purposes) will be subsumed into GST or would continue under the GST scenario. 14.7 ICRA DUTY STRUCTURE FOR AUTOMOBILE OEM’s UNDER CURRENT AND GST REGIME Segment Excise duty NCCD VAT CST Effective TAX Likely GST Two wheelers 12.5 % 1 % 12.5 % 2 % 30.4 % 17-19 % Small cars ( length < 4m) 12.5 % 1 % 12.5 % 2 % 30.4 % 17-19 % Sedans(length > 4m with engine < 1500 cc ) 24 % 1 % 12.5 % 2 % 43.7 % Higher Sedans(length > 4m with engine > 1500 cc ) 27 % 1 % 12.5 % 2 % 47.2 % Higher SUV’s 30 % 1 % 12.5 % 2 % 50.7 % Higher Three wheelers 12.5 % 1 % 12.5 % 2 % 30.4 % 17-19 % Commercial vehicles 12.5 % 1 % 12.5 % 2 % 30.4 % 17-19 % Table 14.1: ICRA duty structure for automobile OEM’s under current and GST scheme
  24. 24. Segment FY 2015 FY 2016 FY 2017 Growth Drivers Commercial vehicles 2.8 % 11.5 % 12-13 % • Pic-up in infra and mining sector to support recovery in tippers. • Pre buying owing to implementation of BS- IV(by April-17) Passenger vehicles 3.9 % 7.2 % 8.5 – 9.5 % • Favorable impact of Seventh pay commission • Expectation of recovery in rural demand Two Wheelers 7.9 % 3.0 % 4 – 6 % • Expectation of better demand from rural areas Tractors 13% 10.5 % 7 – 8 % • Subsidy program in states like AP. Telengana and MP Table 14.2: Growth Estimates & Likely Drivers FY 2017
  25. 25. 14.8 IMPACT OF GST ON LOGISTICS: Improving competitiveness of Road logistics positive for CV demand 1. The other major benefit of GST is expected to be easing out of various bottlenecks and complexities involved in transportation of goods using road logistics from one state to another. Since CST will be subsumed in GST, companies will no longer be required to have depots/warehouses at multiple locations and also do away with C&F agents. 2. In the automobile industry, while OEMs dispatch vehicles directly from their factories to dealers; in their spare parts business, the sales are routed through depots and C&F agents. With the implementation of GST, companies will be able to consolidate their warehousing infrastructure and benefit from lower costs incurred in supply chain. 3. As time spent at various check posts will reduce (with uniform transaction based taxation regime), the operating efficiency of road logistics sector is also expected to improve. This would mean better turnaround time for trucks (i.e. higher asset sweating) and possibly lower demand for new CVs. Additionally, as industries will switch towards consolidating their warehousing infrastructure, the demand is expected to shift in favor of bigger trucks. 4. In ICRA's view, easing of bottlenecks in road logistics would not be materially negative for CV demand over the longer-term as - lower logistics costs will help road sector to compete more effectively with the railways and secondly, efficiencies of road logistic sector are also contingent on the improvement roads & highways sectors, which at present limits ability of trucks to cover a maximum of 350- 400 km per day in contrast to 700-800 km in developed nations. However, this trend is gradually changing with up gradation of national & state highways and deployment of more powerful trucks.
  26. 26. 14.9 Consolidationofwarehousing in favor of bigger trucks but MCVs won’t get completelymarginalize. 1. The other general consensus is that the demand will shift in favor of bigger trucks and medium-segment like 9-16t will get marginalized. The share bigger trucks has gradually been increasing in India on back of their superior cost economic and improving highway infrastructure. 2. In ICRA's view, while the implementation of GST will further support demand for bigger trucks but the shift would be gradual. This is because many applications and industries find MCVs more viable vis- à-vis bigger trucks. Some of the notable sectors where MCVs are predominantly used include. 14.10 Sectors where MCVs are predominantly used: 1. Perishable goods like Diary products, Fruits & Vegetables, Foods grains etc. 2. Auto Components (Typically Ancillaries set-up their units either in the OEM’s vendor park or in the near-by areas, allowing OEMs to optimize their working capital requirements (i.e. Just in Time Concept). 3. Courier & Re-location Services 4. Building/Construction Material (16T vehicles are also used as tippers in Construction sector)
  27. 27. 15. CONCLUSION The automobile industry is looking forward to introduction of GST. However, there are quite a few concerns in the draft Model GST law, including some of the key aspects highlighted above, which need to be addressed. Restrictions and conditions on eligibility to tax credits on assets used for business is also a major area of concern, and the credit mechanism should be more liberal. Proper GST administration and dispute resolution (more importantly on inter-state transactions) is very critical. The industry is also expecting the procedural changes to be notified in advance, and may require a lead time of at least six months before introduction of GST. The taxation of goods and services in India has been characterized as a cascading and distortionary tax on production resulting in mis-allocation of resources and lower productivity and economic growth. It also inhibits voluntary compliance. It is well recognized that this problem can be effectively addressed by shifting the tax burden from production and trade to final consumption. A well designed destination-based value added tax on all goods and services is the most elegant method of eliminating distortions and taxing consumption. Under this structure, all different stages of production and distribution can be interpreted as a mere tax pass-through, and the tax essentially ‘sticks’ on final consumption within the taxing jurisdiction. A ‘flawless’ GST in the context of the federal structure which would optimize efficiency, equity and effectiveness. The ‘flawless’ GST is designed as a consumption type destination VAT based on invoice-credit method.
  28. 28. REFERENCE  http://www.finmart.com/blog/gst-india-goods-service-tax/  https://www.pwc.in/assets/pdfs/services/tax/indirect_news_alert /2016/decoding_the_draft_model_gst_law- key_features_of_the_draft_model_gst_law.pdf  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682260  http://gst.customs.gov.my/en/Pages/default.aspx  http://finmin.nic.in/GST/Empowered%20Committee%20of%20SFM%2 0%20First%20Discussion%20paper.pdf  http://pib.nic.in/newsite/PrintRelease.aspx?relid=148240  http://www.ey.com/IN/en/Services/EY-goods-and-services-tax-gst  https://autoportal.com/articles/impact-of-gst-on-indian-car- market-6224.html  http://economictimes.indiatimes.com/industry/cons- products/fmcg/gst-impact-cars-fmcg-items-to-get-cheaper-services- dearer/articleshow/53583188.cms  http://auto.economictimes.indiatimes.com/news/policy/benefits- challenges-for-auto-sector-in-gst-bill/53541153  http://www.mycarhelpline.com/index.php?option=com_latestnews &view=detail&n_id=1419&Itemid=10  http://www.firstpost.com/auto/impact-of-gst-on-indian-auto- industry-2935702.html  http://overdrive.in/news/impact-of-gst-on-indian-auto-industry/  http://www.autocarindia.com/auto-news/impact-of-gst-on-auto- industry-402707.aspx  https://www.quora.com/What-will-be-the-impact-of-GST-on- Indian-Car-market  https://www.pwc.in/assets/pdfs/services/tax/indirect_news_alert /2016/decoding_the_model_gst_law_impact_on_automobile_sector. pdf  https://www.quora.com/Is-GST-going-to-be-a-boon-or-bane-for- India  https://www.quora.com/What-are-the-good-sides-and-the-bad- sides-of-GST-goods-and-services-tax
  29. 29. ANNEXURE  Fig. 1 Difference between the total price before and after GST implementation Source:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=26869 79  Fig. 2 Comparison of Hatchback, SUV’s and Sedan after GST implication Source: https://autoportal.com/articles/impact-of-gst-on-indian- car-market-6224.html  Fig. 3 GDP composition in March 2012 Source:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=26869 79