Will GST Prove To Be A Game

Changer For Auto Sector ?

04 August 2016

ET Auto Webinar
For1 discussion
purpose only

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GST The Journey So Far.

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The Journey So Far ..

GST

GST

GST

2014

2015

2016

Revised GST
Constitution
Amendment
Bill tabled in
the Lower
House of
Federal
Parliament on
19 December
2014

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Passage of GST
Constitutional
Amendment Bill
in Lower House
on 6 May 2015.

Bill referred to
Select Committee

Report of the
Select Committee
received and
The Bill presented accepted by the
in Upper House
Cabinet of
on 12 May 2015. Ministers

GST draft law

and rules is
released in
public domain in
June 2016
GST Constitution
Amendment Bill
passed in the
Upper House on
03 August 2016

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GST The Road Ahead

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The Road Ahead.

Establishing Legal Framework

Approval of 16 State Legislative Assemblies

Presidential Assent

Setting up of GST Council

CGST and IGST law to be cleared by Parliament and SGST laws by respective State Assemblies

Dec - 16

IT Infrastructure

Software for registration, return and payment ready as per Government

Hardware supply to start soon

CBEC, GSTN & States IT back-end likely to be ready by Nov 2016

Testing of software with live transactions by January 2017

Feb - 17

Change Management

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Training of central and state government officers on new law

GSTN to provide IT training to officers

Training modules to be prepared by Government for small traders

Guidance notes on various modules to be issued for ease of understanding for businesses

Mar - 17

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Key Challenges

Rate structure

Exemptions

Threshold limit

Principles of apportionment of GST between States and Centre

Forging consensus on model GST law

Division of administrative control between States and Centre

Smooth transition

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Overview of GST in India

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Current Indirect Tax System In India vs GST

State VAT/ CST

CENVAT/Service Tax

Primary
Producers

Service
Providers

Primary
Primary
Producers
Producers

Manufacturers

Service
Resellers

Manufacturers

Distributors
Resellers

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Real Estate

Distributors
Resellers

GST

Providers

Primary
Producers

Service
Service
Providers
Providers

Service

Manufacturers

Service

Resellers

(less exclusions)

Resellers

Distributors

Real Estate/

Resellers

Petroleum

Service

Real Estate

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Proposed GST framework

Dual-GST

GST rates

Centre

NIPFP

and States to levy GST on

common base (CGST & SGST)

Place of Supply
Taxing

principle shifts from origin to

supply destination

Interstate supplies/ Imports

Integrated-GST

(IGST) on inter-state
supplies / imports

Exemptions
Exemptions

to be kept at minimum Likely

to be aligned with exemptions generally
provided under VAT

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initially recommended
CGST+SGST rates of 12% for basic
necessities & 27% for all other goods &
services
Extreme discomfort with these rates
NIPFP asked to rework based on latest
revenue data; second report not yet
made public
CEA report suggests RNR of 17.5%18.5%; recommendations not accepted
by Empowered Committee
Various rate options being considered:
Single rate of 12% + Special rates
Two rates of 12 & 18-22% + Special
rates
States to have powers to determine
SGST rates within narrow band
different rates could make invoicing &
compliances extremely complex

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GST credit mechanism

Taxes paid on inputs are available as credit against the output tax liability of each transaction

CGST

SGST

CGST

SGST

IGST

IGST

IGST

IGST

CGST

SGST

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Why EY
Impact of GST on Auto Sector

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Change in Excise duty and VAT/CST Structure

ILLUSTRATIVE

Duty structure on Manufacture of Vehicles under Current and GST Regime

Current levies

Proposed GST rate

Total Tax Cost

Manufacture and sale of Vehicles

Excise

NCCD

Automobil
Infra Cess
e Cess

VAT

Total Tax

CGST

SGST

IGST

In case of
CGST +
SGST

In case of
IGST

20.00%

20%

Petrol, LPG and CNG Motor

Vehicles principally designed for the
transport of persons of a cylinder 12.50% 1.00% 0.125% 1.00%
capacity not exceeding 1200 cc and
length not exceeding 4000mm

14.5% 31.25% 10.00% 10.00%

20%

Motor cars and other motor vehicles

principally designed for the transport
27.00% 1.00% 0.125% 4.00%
of persons of a cylinder capacity
exceeding 1500 cc

14.5% 51.28% 14.00% 14.00%

28%

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Private and confidential Restricted circulation only - Draft

28.00%

28.00%

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Component Manufacturers

Increase in cash outflow on imported goods and services, as well as domestic

services

R&D Cess not likely to be subsumed Additional cost

Reduction in cost on inter-State procurement IGST to be creditable

Increase in cash outflow on interstate stock transfers from factory to

warehouse due to IGST; valuation may also be a challenge

Disputes with VAT authorities on concept of pre-determined sales to OEMs to

go away

No accumulation of SAD credits

For after market, concept of MRP valuation for Excise purpose will go away

Raw materials such as natural rubber may become more expensive

Import under FTA vs Make in India

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OEMs

Ambiguity regarding GST rate structure

Ambiguity regarding continuation of cesses Auto Cess, NCCD, Infra cess etc.

Increase in cash outflow on imported goods and services, as well as domestic

services

Reduction in cost on inter-State procurement IGST to be creditable

Reduction in cost due to enhanced credit pool for sales companies

Concept of transaction value retained in Model GST law; present challenges

may continue under GST (eg PDI charges, advertisement by dealers etc)

Value added services to become costlier (extended warranty, AMCs etc) due to
increase in tax rate on services

Treatment of dealer incentive schemes and discounts etc need clarity

No clarity on fate of MOUs signed by OEMs for grant of incentives/ subsidies by

State governments

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Dealers

Increase in credit pool GST paid to OEMs to be completely fungible against

output GST on sales

Cost on account of local services to reduce as GST will be creditable However,

higher GST rate on services may lead to increase in upfront cash outflow

Point of taxation for sales may shift to receipt of advance payment from
customers adverse impact on cash flows

Treatment of discounts to customers and exchange schemes etc needs clarity

No clarity on the rate to be applied on ancillary services provided to customers

such as PDI charges, parking charges etc.

Free of cost service and goods provided to taxable persons to be liable to GST
Free servicing provided to company vehicles, tourist/ commercial vehicles etc.

No visibility on GST treatment for used/ second hand vehicles

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Service providers Transporters/ 3PLs

Current abatement under Service tax may not be there under GST, making
services more expensive

Liability to pay GST may be on forward charge basis

In case payment of GST is on forward charge basis, possibility to claim credit of

GST paid on purchase of vehicles, spare parts as well as input services

Cash flow may increase on input services repair and maintenance of fleet etc
due to higher rate of GST

Fuel kept out of GST purview for the time being may lead to cascading of
taxes

Services may be received during transit in various States toll etc. Whether
credit of GST on such services can be claimed?

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Questions?

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