GST will be positive for the automotive sector primarily because of the removal of cascading effect of tax on the cost of goods and services that is expected with GST. Currently most of car manufactures are located in few of the states in India. When they sell car to other states, they charge 2 % CST, which is currently included in the cost of car as it is not creditable. However, in GST regime, credit will be available.
Currently MRP based payment of excise is applicable on accessories leading to higher landed cost. In the GST regime, it will go away.
Other aspect is easy credit mechanism so that all taxes on inputs are set off against the output liability of GST. Input may be capital goods or input service, credit of all is available for set off.
Since all indirect taxes will be subsumed, companies would need to bring in significant change in processes, training teams and developing IT systems for being GST compliant. Organizations have to upgrade their technology infrastructure, as most of the processes are automated in GST regimes in respect of tax credit, redesigning of invoices and other procedural aspects.
It’s a wrong perception that the prices are likely to rise, in fact the prices will be reduced which will ultimately benefit end customer. It is unlikely to have negative impact on the demand of product.
