Automobile Industry

A pre- and post-GST analysis of the 4 wheeler segment

Ayush Bisht
IPBM 2014-19
 Table of contents
Introduction 4
Market Size 4
Investments 4
Government Initiatives 5
Road Ahead 5
Performance 6
Production 6
Domestic Sales 6
Exports 6
Domestic Market Share for 2017-18 7
Automobile Production Trends 8
Automobile Domestic Sales Trends 8
Automobile Exports Trends 9
Effect of Goods & Services Tax (GST) 10
Simplification of Logistics with Input Tax Credit 12
GST on Spare Parts: Tax on Highest Level 12
On the Basis of this, the Conclusion Comes at: 13
GST Becomes Positive For Commercial Vehicles Sales 13
Reduction in Operating Cost 15
Impact on Working Capital 15
Impact on Auto Valuation after GST 15
Low Impact on Two Wheelers 15
High Impact on Commercial Vehicles 16
Low Impact on Passenger Vehicles 16
Green Vehicles under the Purview of GST 16
Demo Cars Heavily Taxed 16
Government Notified GST Tax on Automobiles 17
Conclusion 20
References 21
Introduction
The Indian auto industry became the 4th largest in the world with sales increasing 9.5 per cent
year-on-year to 4.02 million units (excluding two wheelers) in 2017. It was the 7th largest
manufacturer of commercial vehicles in 2017.

The Two Wheelers segment dominates the market in terms of volume owing to a growing middle
class and a young population. Moreover, the growing interest of the companies in exploring the
rural markets further aided the growth of the sector.

India is also a prominent auto exporter and has strong export growth expectations for the near
future. Overall automobile exports from India grew at 6.86 per cent CAGR between FY13-18. In
addition, several initiatives by the Government of India and the major automobile players in the
Indian market are expected to make India a leader in the two wheeler and four wheeler market
in the world by 2020.

Market Size
Overall domestic automobiles sales increased at 7.01 per cent CAGR between FY13-18 with
24.97 million vehicles getting sold in FY18.

The auto industry is set to witness major changes in the form of electric vehicles (EVs), shared
mobility, Bharat Stage-VI emission and safety norms. Electric cars in India are expected to get
new green number plates and may also get free parking for three years along with toll waivers@.
Sales of electric two-wheelers are estimated to have crossed 55,000 vehicles in 2017-18.
Premium motorbike sales in India crossed one million units in FY18.

Investments
In order to keep up with the growing demand, several auto makers have started investing
heavily in various segments of the industry during the last few months. The industry has
attracted Foreign Direct Investment (FDI) worth US$ 18.413 billion during the period April
2000 to December 2017, according to data released by Department of Industrial Policy and
Promotion (DIPP).
Some of the recent/planned investments and developments in the automobile sector in India are
as follows:

Ashok Leyland has planned a capital expenditure of Rs 1,000 crore (US$ 155.20 million) to
launch 20-25 new models across various commercial vehicle categories in 2018-19.
Mahindra & Mahindra (M & M) is planning to make an additional investment of Rs 500 crore
(US$ 77.23 million) for expanding the capacity for electric vehicles in its plant in Chakan.

Government Initiatives
The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route.

Some of the recent initiatives taken by the Government of India are -

The Government of Karnataka is going to obtain electric vehicles under FAME Scheme and set
up charging infrastructure across Bengaluru, according to Mr R V Deshpande, Minister for
Large and Medium Industries of Karnataka.
The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country
for introduction of electric vehicles (EVs) in their public transport systems under the FAME
(Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The
government will also set up incubation centre for startups working in electric vehicles space.
Energy Efficiency Services Limited (EESL), under Ministry for Power and New and Renewable
Energy, Government of India, is planning to procure 10,000 e-vehicles via demand aggregation,
and has already awarded contracts to Tata Motors Ltd for 250 e-cars and to Mahindra and
Mahindra for 150 e-cars.
The government is planning to set up a committee to develop an institutional framework on
large-scale adoption of electric vehicles in India as a viable clean energy mode, especially for
shared mass transport, to help bring down pollution level in major cities.

Road Ahead
The automobile industry is supported by various factors such as availability of skilled labour at
low cost, robust R&D centres and low cost steel production. The industry also provides great
opportunities for investment and direct and indirect employment to skilled and unskilled
labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs

16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026. Two-wheelers are expected to grow 9 per
cent in 2018.
Performance
Production

The industry produced a total 29,075,605 vehicles including Passenger Vehicles, Commercial
Vehicles, Three Wheelers, Two Wheelers and Quadricycle in April-March 2018 as against
25,330,967 in April-March 2017, registering a growth of 14.78 percent over the same period last
year.

Domestic Sales
The sale of Passenger Vehicles grew by 7.89 percent in April-March 2018 over the same period
last year. Within the Passenger Vehicles, Passenger Cars, Utility Vehicle and Vans grew by 3.33
percent, 20.97 percent and 5.78 percent respectively in April-March 2018 over the same period
last year.

The overall Commercial Vehicles segment grew by 19.94 percent in April-March 2018 as
compared to the same period last year. Medium & Heavy Commercial Vehicles (M&HCVs) grew
by 12.48 percent and Light Commercial Vehicles grew by 25.42 percent in April-March 2018
over the same period last year.

Three Wheelers sales grew by 24.19 percent in April- March 2018 over the same period last year.
Within the Three Wheelers, Passenger Carrier & Goods Carrier sales registered a growth of
28.65 percent and 7.83 percent respectively in April-March 2018 over April-March 2017.

Two Wheelers sales registered a growth at 14.80 percent in April-March 2018 over April-March
2017. Within the Two Wheelers segment, Scooters and Motorcycles grew by 19.90 percent and
13.69 percent respectively, while Mopeds declined by (-) 3.48 percent in April-March 2018 over
April-March 2017.

Exports
In April-March 2018, overall automobile exports increased by 16.12 percent. Two and Three
Wheelers Segments registered a growth of 20.29 percent and 40.13 percent respectively, while
Passenger Vehicles and Commercial Vehicles declined by (-)1.51 percent and (-) 10.53 percent
respectively in April-March 2018 over the same period last year.
Domestic Market Share for 2017-18

Passenger Vehicles 13

Commercial Vehicles 3

Three Wheelers 3

Two Wheelers 81

Grand Total 100

Automobile Production Trends

Category  2012-13  2013-14  2014-15  2015-16  2016-17  2017-18 

Passenger  32,31,058  30,87,973  32,21,419  34,65,045  38,01,670  4010373 

Vehicles 

Commercial  8,32,649  6,99,035  6,98,298  7,86,692  8,10,253  894551 

Vehicles 

Three  8,39,748  8,30,108  9,49,019  9,34,104  7,83,721  1021911 

Wheelers 

Two  1,57,44,156  1,68,83,049  1,84,89,311  1,88,30,227  1,99,33,739  23147057 

Wheelers 

Grand Total  2,06,47,611  2,15,00,165  2,33,58,047  2,40,16,068  2,53,29,383  2,90,73,892 

Automobile Domestic Sales Trends

Category  2012-13  2013-14  2014-15  2015-16  2016-17  2017-18 

Passenger  26,65,015  25,03,509  26,01,236  27,89,208  30,47,582  32,87,965 

Vehicles 

Commercial  7,93,211  6,32,851  6,14,948  6,85,704  7,14,082  8,56,453 

Vehicles 

Three  5,38,290  4,80,085  5,32,626  5,38,208  5,11,879  6,35,698 

Wheelers 

Two  1,37,97,185  1,48,06,778  1,59,75,561  1,64,55,851  1,75,89,738  2,01,92,672 

Wheelers 

Grand Total  1,77,93,701  1,84,23,223  1,97,24,371  2,04,68,971  2,18,62,128  2,49,72,788 

Automobile Exports Trends

Category  2012-13  2013-14  2014-15  2015-16  2016-17  2017-18 

Passenger  5,59,414  5,96,142  6,21,341  6,53,053  7,58,727  7,47,287 

Vehicles 

Commercia 80,027  77,050  86,939  1,03,124  1,08,271  96,867 

l Vehicles 

Three  3,03,088  3,53,392  4,07,600  4,04,441  2,71,894  3,81,002 

Wheelers 

Two  19,56,378  20,84,000  24,57,466  24,82,876  23,40,277  28,15,016 

Wheelers 

Grand Total  28,98,907  31,10,584  35,73,346  36,43,494  34,79,169  40,40,172 

Effect of Goods & Services Tax (GST)
The 14-year-long journey of Goods and Service tax (GST) finally culminated on July 1, 2017 with
the implementation of the biggest tax reform of India in 70 years of independence. While the
government of India under the leadership of Prime Minister Narendra Modi hailed the moment
of ‘Good and Simple Taxation System’ for the benefit of common people, small traders and
industry as a whole; the opposition parties have slammed the establishment for forcing a
half-baked GST regime over the taxpayers.

The whole issue about the impact of GST on the auto industry hovers around the compliance of
the new taxation system by the sector as a whole. The outlined benefits of GST on auto industry
are primarily simplifying logistics and constraining the operational and manufacturing costs, the
compliance is something industry is vary about.

What started as a Single Nation Single Taxation drive has largely unified 17 different taxes
including various excise duties, octroi, service tax, VAT, and many more. However a nation of
more than a billion people has ideologue ready to delineate GST as another 17th tax. The myth is
widespread like a cacophony before the elephant starts to walk.

To brace with the impact of GST Indian Automobile Industry offered pre GST discounts on cars,
scooters and bikes. The discounts poured in throughout the June as the Auto majors like Maruti
Suzuki, Toyota, Hyundai, Honda and mostly all players announced big rate cuts in a race to trim
their inventory ahead of GST.

Amidst all the turmoil and apprehensions, July’17 went loudly ahead than the previous sluggish
months and ended with a bang for the entire industry with Maruti Suzuki, Honda Cars and Ford
India grabbing the podium. While The Maruti Suzuki recorded a staggering domestic growth of
22.4% in July ’17 as against July’16 Honda Cars too came out with flying colors with an
astounding rise of 21.74%, as compared to July 2016.

The initial GST ambiguities seem to be settling down and the festivity ahead will only add ice on
the cake. To understand the impact of GST on the industry as a whole, you need to understand
its effect on various business operations including production, procurement, pricing and sales
strategy.
Simplification of Logistics with Input Tax Credit

GST has been introduced to subsume the current indirect tax regime which used to attract
several duties and taxes on the sale of vehicles and spares and accessories. The previous taxation
regime included:

● Central Excise Duty

● Additional Excise Duty
● Infrastructure Cess
● CVD and Additional Import Duty
● VAT on intra State sales
● CST on Interstate sales

Currently, all these resulted in cascading effect and increased the product price. However, now it
is expected that product cost will be substantially reduced due to seamless input tax credit (ITC)
across the supply chain– from manufacturer, to supplier, to agent, to final buyer all can claim
input credit for tax paid on purchases.

Now the businesses would be able to claim ITC on various elements across the supply chain like
lease rentals, IT services and freight charges. The bottlenecks related to logistics and
transportation of units from one state to another state would also be wiped off. The reduced cost
will in effect reduce the price and raise the demand and growth in the sector. The consumer in
India is price savvy and companies never fail to use the event to bring sale and discounts.
Nevertheless, post-GST rollout, Maruti Suzuki, Tata Motors, Toyota, Nissan and Renault India
have also announced the discounts to pass GST benefit to the end buyer.

GST on Spare Parts: Tax on Highest Level

According to the recently surfaced, spare parts bill of an automobile, it seems that the GST rates
are a big issue within the industry. On a bill of 35,000, it was seen that a tax of 10000 was
levied. It was a hefty charge upon the billing as tax amount is taking a toll on the pockets of the
consumers.

A tax rate of 28 percent on the spare parts is a heavy tax rate as most of the consumer base pay
the charges on a natural act of wear and tear or upon accidental damages. Bringing such a heavy
tax rate upon such incidents have made the market much more sensitive regarding the price
issues.
As the spare parts of vehicles both commercial and private had fallen into the bracket of highest
slab rate i.e. 28 percent, it made a misery moments for the spare parts trading community. Also,
the complex compliance makes it more vicious for the traders to indulge in any kind of taxing
activity. The trading of spare parts is completely disrupted after the implementation of GST
including the much-hyped Delhi’s Hamilton road.

Many of the traders complained that the GST made their business to the lowest rank and are
expecting only 10 percent of the business of what they were earlier doing. The tax rates of 28
percent are much higher than previously applicable 12 percent and now the customers are not
willing to pay this much of taxes.

The scenario of taxes can be understood, like a wholesaler in Gurgaon paying 28% tax in Delhi
to acquire goods worth Rs 1,000. The GST comes out to be Rs 280, including Rs 140 as Central
GST and Rs 140 as State GST. Since the supply has been made over the counter in Delhi, the
buyer can claim ITC on the SGST of Rs 140 and only if he is registered under Goods and Services
Tax as a trader in Delhi. The auto parts industry states this equation to be the main factor of
decreased sales after the implementation of GST.

On the Basis of this, the Conclusion Comes at:

Luxury cars​ – The tax rates are combined at 42 to 45% in the GST era as compared to more
than 50% above rates previously and has made a cheap tax rate scenario for the luxury cars GST
rates.
Small cars​ – The earlier tax rates were concluded at 29% including VAT and other local levies
while in the GST scenario, the same impact is created with 28% GST and 1% cess rate on it.
Hybrid cars​ – The biggest damage considered in the automobile sector can be attributed to the
hybrid vehicle despite its promising future in the environmental sustainability. It has been
levied with 28% GST rates along with the 25% extra cess on it.
Spare Parts​ – Spare parts are levied with 28% tax rate which is highest of the slab. Although
the tax rates are recovered in initial state but the government choose to carry forward tax
scenario on secondary items also.
While it is totally upon the discretion of automobile manufacturers to increase or decrease the
prices of vehicles, it is to be seen in upcoming future to have stable effects on the whole industry.

GST Becomes Positive For Commercial Vehicles Sales

As soon the GST got to see the day of light in India, there were some foremost benefits emerged
in the economy as well as in many of the sectors. One of them is automobiles sectors, including
all the segments, passengers as well as commercial vehicle segments. Also, the GST e-way bill
made some possibilities for the vehicles to roam free without any border checking.
In the same manner, the commercial vehicles are now way much ahead in productivity than
earlier situations. The logistics companies are considering to increase the inventory of the
commercial vehicle as the vehicles are now capable to take the much higher load and can
transport eh cargo in much less time than previously taken.

Binaifer Jehani, director, CRISIL Research stated that “As hubs get bigger, and more
concentrated for a few industries, preference will shift to much higher-tonnage HCVs (towards
37T multi-axle vehicles and higher-tonnage tractor-trailers). Also, new product offerings by
OEMs in the higher tonnage intermediate commercial vehicles (ICVs) segment will continue to
gain traction along the spoke routes.”

The automobile manufacturer is also in discussion to make higher capacity vehicles to serve the
industry which is ready to offer an order of commercial vehicles in anytime soon. The sales trend
in the 35T, 40T, 49T tractor-trailer segment has been providing much evident proof that the
logistics industry will be improving soon.

With GST in the picture, good roads with better compliance procedure in the middle of the
journey as well as better technology has given a positive hint to the automobile manufacturers to
make more and more commercial vehicle. Tata Motors, Ashok Leyland, BharatBenz, Mahindra
& Mahindra and VE Commercial vehicles are some of the vehicle providers who are standing in
the first row to cater the evergrowing logistics industry.

Luxury Carmaker Mercedes Objection

Even Mercedes Benz is not at all happy with the frequent tax rate changes done by the GST
Council. Earlier in July when the GST was implemented across the nation, there was not
much-known information available on the topic but now as the time passes, it has unveiled that
the actual implementation has taken a toll on various business.

The impact has certainly reached to the luxury carmaker Mercedes and has gone up to say that
frequent tax rate changes may take away future projections under anonymity. The luxury cars
put down into sin tax category with an increased charge of Cess overall taking the tax incident
up to 50 percent on various models.

The sale of luxury automobiles is already under lower stats and higher tax applicability will take
away its chance to grow further in the country. The carmaker also made some unexpected
comments and said that there is higher risk involved in planning as the government tax rate
tweaking is more than enough.

Auto Sector Wants the Government to Eliminate Cess on Cars Under GST
The sharing of GDP in the automobile sector of the country is 7 percent, so it is important to
discuss this issue in the budget. With the fifth position in four-wheeler sales and first position in
the sales of two-wheelers, India is the largest automobile market in the world.
Society of Indian Automobile Manufacturer
(SIAM) Association had demanded earlier this year that all passenger vehicles should be
categorized into two separate slab rates under GST. Currently, 28 percent tax and an additional
1 percent cess are being levied on small petrol cars whereas 28 percent tax and an additional 3
percent cess is being imposed on small diesel cars. All other cars including Hybrid ones attract a
28 percent GST and an additional 15 percent cess. SIAM is demanding that the government
should remove the cess completely from all these cars. However, this is not expected to happen
as the government cannot actually remove cess from all categories of cars.

Reduction in Operating Cost

With elimination of CST, companies need not maintain warehouses and C&F agents at multiple
state points. The warehousing infrastructure could be clubbed and lower the operating costs in
the supply chain. Further with the inclusion of business overheads such as advertising, business
promotion under Input tax credit, the operation cost would be further reduced.

Impact on Working Capital

This would be a huge concern for the dealers as the supply is taxable in GST. On the date of
vehicle transfer, GST would be paid and it would lock the capital. Now the dealer would be
required to pay GST on the same day as he receives the advance and it will hurt their outflow.
Another cash lock would be when the auto manufacturers would offer free services/warranties
as sales’ benefit to their customers (at the time of sale of vehicles). They would pre-pay GST on
the issue date of the coupon while customers would be using the service on a later date.

Impact on Auto Valuation after GST

The base GST rate has been set at 28% besides a cess (1% to 15%) on vehicles of different
categories and sizes. Together both will impact the end prices.

Low Impact on Two Wheelers

The impact of GST is marginal on two-wheelers sector as the levy is 28 % on engines below
350cc and 31% on engine above 350 cc is 31%. Earlier the segment was charged with 30.2 %.
Largely the impact on prices of 81% of market would be broadly unaffected.
High Impact on Commercial Vehicles
The commercial vehicle segment comprises commercial vehicles and three-wheelers. Earlier the
segment was paying 12.5 % Excise Duty + 1 % NCCD + 12.5 % VAT and 2 % CST which totalled
to overall 30.2 % of tax. Herein three-wheelers were excluded of 1% of NCCD. After GST, the
overall impact on the segment is a slight dip of 2.2 % as the levy is 28%. So, the impact in
valuation is again negligible. Similarly, there would be no change in the prices of tractors. The
maximum effect would be visible on a new category being introduced for minibuses ferrying up
to 13 passengers. Besides the base rate, the passenger vehicle would invite a 15 % cess on them
shooting up the total GST to 43%, which is a major cause of concern.

Low Impact on Passenger Vehicles

Small cars (both petrol and diesel variants; engine below 1200 cc)

The economic car section would attract the base rate of 28% GST along with a cess of 1% and 3%
which is smaller than current 31.4% to 33.5%. In effect, the price of this segment would be
neutral or reduced marginally. Bigger sedans and SUVs (1,500cc or more engine size, Over
4,000 mm length and Over 170mm ground clearance). In this segment, the buyer will enjoy the
price cut. The current tax rate was 46.6% to 55.3% which was much higher than the new GST
rate of 28 % (+15 % cess).

Green Vehicles under the Purview of GST

A 15% cess above the base GST rate of 28% on green vehicles is questionable as it is far above the
existing 30.3% rate. While the officials have claimed that smaller hybrid vehicles are ruled out
from additional cess of 15%.

Demo Cars Heavily Taxed

GST demands a high tax rate on the demo cars. Currently, these vehicles were taxed at 0.5%
while they are sold in the used car market after a year or so. With GST, tax rates of 28% and 43%
of the sale value would be levied.
Conclusion
All in all, the sentiment all across appears positive so far for the single manufacturer levy.
However, it would be too early to pass the judgment. According to Moody’s Investors Service,
the implementation of the GST is expected to lead to higher GDP growth and increased tax
revenues for the Indian government. The success would largely depend on the integrated
compliance by all the players alike.

Government Notified GST Tax on Automobiles

Category  Engine  Pre-GST  Post-GST +  Final 

Cess 

Under 4-metres  Under 1.2-litre Petrol  31.5%  28% + 1%  29% 

Under 4-metres  Under 1.5-litre Diesel  33.25%  28% + 3%  31% 

Under 4-metres  Above 1.2-litre Petrol or 1.5-litre  44.7%  28% + 19%  47% 
Diesel 

Above 4-metres  Above 1.2-litre Petrol or 1.5-litre  51.6%  28% + 25%  53% 
Diesel 

SUVs  –  55%  28% + 29%  57% 

Hybrids  –  30.3%  28% + 15%  43% 

Electric Vehicles  –  20.5%  12% + 0%  12% 

(EVs) 
LUXURY CARS

Doubtless, this segment will be the biggest beneficiary of GST, with gains anywhere between Rs
60,000 and Rs 6 lakh or 4% to 9%, depending on the state. “The GST regime promises growth
potential to the luxury car industry, which long remained prohibitively taxed, making them
unaffordable for aspirational buyers,” says Roland Folger, CEO of Mercedes-Benz India.

The luxury car market in India at 35,000 to 37,000 units is just 1%of the overall passenger
vehicle market.

At 1.2%, India has one of the lowest penetration rates for the luxury segment, significantly
behind countries like Russia, China, Brazil and even South East Asian markets such as Malaysia.
In contrast, luxury car penetration in Germany is 24%, 8% in China, in Malaysia it is 5.4% and
2.5% in Indonesia.

GST may well provide the impetus the segment needed. Luxury carmakers have already begun
passing on benefits of a lower tax regime.Mercedes, for instance, reduced prices up as much as
Rs 7 lakh on upper end models, with an average price drop of 4%. “We have seen renewed
interest and an increase in showroom footfalls after we passed on the GST benefits to
customers,” adds Folger.

Prohibitive pricing primarily due to high tax structure was a key reasons for the segment not
growing to its full potential. Industry experts say an increase in volumes will also attract added
investments both from the dealer network and also from the parent companies; this will lead to
additional manpower requirement and hiring across levels both from the manufacturers and the
dealers.
COMPACT CARS

Although the rate on small cars is largely revenue-neutral, a marginal bump in prices is
expected. Rakesh Srivastava, director, sales and marketing, Hyundai Motor India says, “With
prices of mid-size sedans and SUVs likely to go down, offers are higher on them currently. But
once GST is implemented, we expect schemes and offers will move to smaller cars to ensure
demand is sustained.”

BIG CARS, SUVS AND HYBRIDS

Even as the noise against bigger diesel vehicles was increasing, a benefit accruing out of a
rationalisation exercise for bigger cars and SUVs turned out to be a big surprise. The narrowing
price gap between sub-4 metre and mid-size cars is likely to lead to shift between segments.
However, the industry has varying opinions. A 0-5% relative price change between small and
large cars will not change buying patterns or significantly impact the sales growth pattern
towards SUVs, says Pawan Goenka, MD, Mahindra & Mahindra (M&M).

“With rates going down for bigger vehicles and income levels going up, it will be more affordable
to buy bigger vehicles in the future.” Adds N Raja, senior vice president, sales & marketing, at
Toyota Kirloskar: “We think the industry will break into double digit territory this year.”

The 43% tax (28% GST plus 15%) on hybrids is too high for fuel-efficient vehicles, shrug
carmakers, who may well decide to phase them out. While M&M is extremely bullish on electric
vehicles (EVs) – which the government is also betting big on – it hasn’t taken a call on hybrids
yet. “We are doing market research to check whether consumers will be willing to pay the hybrid
premium,” points out Goenka.

The 13-23% price hike in hybrid vehicles as a result of GST could impact demand for Maruti (5%
of its sales volumes) and Mahindra (4%), according to a research report by CIMB Securities.
Maruti Suzuki, one of the largest sellers of mild hybrids Ciaz and Ertiga, saw sales of over
100,000 units since 2015 launch.

Prices of Toyota’s hybrids Camry and Prius are likely to go up by Rs 5-7 lakh. Raja feels demand
will veer towards petrol in both segments. “Hybrid vehicles are a bridge to move to fully
electrified vehicles. Without infrastructure, it will be tough to make the transition quickly,” he
adds.

GST may well go on to alter contours of the car market, so far dominated by hatchbacks and
compacts. Expect more buyers to gravitate towards mid-size sedans and SUVs.

If there is a concern, it’s that state governments may impose additional duties to make up for
revenue loss; if that happens, it will be contradictory to the GST motto of one nation, one tax,
says Archit Gupta, CEO of ClearTax.com.
Conclusion
The cheaper vehicles will fuel demand in the market and consequently boost manufacturing
growth. Also, with the GST rates of taxation being the same across the country, there will be no
differentiation of tax cost for the consumer when procuring the vehicles from another state.
This will reduce incidences of tax evasion which occur due to consumers buying vehicles from
states other than where they reside.

With GST, things like multiple levels of taxation, elaborate tax compliance obligations, and
cascading taxes will be a thing of the past. A simplified and fully-automated tax mechanism
ensures better compliance.

Another thing to note is that GST will reduce the cost of manufacturing due to the subsuming of
different taxes levied in the past. Since the taxes will be charged on supply, and consumption
state, rather than the origin state, it would give a boost to the growth rate of the automobile
industry.
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