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What is GST and how will it benefit the automotive sector

August 04, 2016, 12:17 PM IST by Firoze Irani
What is GST and how will it benefit the automotive sector

There is one fundamental answer to why almost everything is so expensive in India and that is taxes. However, if the Goods and Services Tax (GST ) bill does pass it is set to make India one unified common market. What that means, is GST will replace the list of indirect taxes being charged by states. This in turn could reduce prices of automobiles significantly.

This Bill proposes to benefit almost every party involved, businesses will benefit with easy compliance and uniformity of tax rates and structures. Central and State governments can benefit by having simple and easy to administer taxes in place of the multiple indirect taxes. This move will also provide a higher revenue efficiency which means it will decrease the cost of collection of tax revenues, and will therefore, lead to higher efficiency.

Lastly, the consumers. There will be a single and transparent tax which will be proportionate to the value of the goods and services and also provide a relief in overall tax burden. Just to give an idea, GST at state level will subsume, value added tax/sales tax, entertainment tax, octroi and entry tax, purchase tax, luxury tax and taxes on lottery.

Coming to the automotive sector, at the moment, the effective tax rate in the sector currently ranges between 30 per cent and 47 per cent. On implementation of GST, the tax rate is expected to waver between 19-22 per cent. According to financial experts, it is expected to drive overall demand and reduce cost for the customer by about 8-10 per cent.

Let’s not count our eggs before they hatch as the legislation requires 50 per cent of the states to approve it and the implementation date is set for April 1, 2017.

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