Words by Sugato Sen, Deputy Director General, SIAM
India has rolled out its biggest tax reform in history with the objective of eliminating cascading effect of various central and states taxes. The Goods and Services Tax (GST), which came into effect from July 1, is a unified tax aimed at bringing transparency and creating data for almost every monetary transaction in the economy.
It is a broad-based consumption tax that will eventually simplify compliances significantly. It will subsume a whole lot of indirect taxes and benefit consumers. As more taxpayers come under the fold, GST is expected to expand revenue growth significantly.
The Society of Indian Automobile Manufacturers (SIAM) welcomes new GST rates for automobiles as they are in line with industry expectations. Almost all segments will be benefited by way of a reduced overall tax burden in varying degree. Conventionally fuelled vehicles will now be taxed at 28 per cent and electric vehicles at 12 per cent. Passenger vehicles and a few categories of two-wheelers would also attract compensation cess.
This will pave the way for stimulating demand and strengthening the automotive market as envisioned in the Automotive Mission Plan 2016-26. The government has done well to ensure stability in taxation while moderating tax rates wherever they were too high. However, the auto industry is waiting to gauge the impact on the entire value chain.
How will it work?
The Application Service Provider will standardise all invoices of a company into a compliant format. The GST Service Provider will provide a data pipe that allows companies to upload all invoices in bulk. The GST Network will process tax filings and calculate a company’s tax liability.
Companies will file one return per month, in 3 parts. Tax return for sales invoices (Form GSTR 1) must be uploaded by the 10th of following month so that they are reconciled with the invoices of suppliers (Form GSTR 2A). Any additional claim or correction in Form-2A must be incorporated and submitted in Form GSTR-2 by 15th of every month. The final tax return (GSTR-3) will calculate the company’s tax credits and the amount of GST it should pay. This eliminates human interface to a large extent and brings in ease of doing business.
It is good that we are moving towards digital modes of accounting. As the tax base expands, more funds will be available with the government to build and upgrade infrastructure. Better roads and highways across all states will expand and accelerate economic activity in coming years.
Differential GST will also help electric mobility to gain momentum in the country. We would have liked to see a similar differential duty on hybrid vehicles to continue. With the focus on reducing greenhouse gas emissions and reducing carbon footprint, we expect lower taxation to continue on such vehicles and other renewables like bio-fuels in a technology-agnostic manner.
There are some areas which will need review. For hybrid-electric passenger vehicles more than four metres in length, the proposed rate of 28 per cent is saddled with 15 per cent additional cess. SIAM believes that cess portion should be removed or at least reduced. Also, the inclusion of 10 to 13 seater buses – used mainly for public transport attract compensation cess like luxury cars, which also merits a review.
For hybrid electric small cars, commercial vehicles, two-wheelers and three-wheelers, the industry is hoping for a 10 per cent rebate of duty so that the applicable GST rate is 18 per cent.
Vehicle registration tax and road tax have been kept outside the purview of GST. In the past any benefit extended by the Central Government by way of rationalisation of taxes has been taken away by a few states by increase in the road tax rates. SIAM had been requesting for subsuming road tax in GST. This concern has been validated as Maharashtra has already announced a 2 per cent increase in road tax. Organised used vehicles form a huge market in India providing employment to millions of people. The GST rate on used vehicles for the organised sector is new vehicle rate applicable on : sale price minus the purchase price. To promote social inclusiveness, SIAM proposes a five per cent GST rate on sales minus purchase price. This is in line with past practice when central government was not levying any tax on such trade.
GST might have caused a lot of disruption in the business practices of all corporates. Nevertheless, it is one of the biggest reforms in the indirect taxation system of our country and has been rightly conceptualised and implemented. The automobile industry has swiftly adapted its systems to align with the GST systems and would continue to work with the government to make the transition smooth.