GST to provide US$ 39bn auto ancillary industry fuel for growth

Jaipur: The $39 billion auto ancillary industry which complements the OEMs will be benefited from the GST regime. The current effective rate of tax for auto ancillary industry is between at 28 to 30% but this will come down to 18% after the GST implementation.

"Many auto component manufacturers usually set up their units closer to the OEM facilities just to avoid VAT credit chain. However, in the new GST regime there will be no such compulsion as the input credit claim will be available to them through IGST and SGST. This will reduce the capital investments and increase working capital inflows to auto ancillary industry," said Mohit Bhambani, CEO of Jaipur-based KDK Softwares Pvt Ltd, on the sidelines of an event.

Accounting to EY reports, for auto component manufacturers, the present disputes with VAT authorities on the concept of pre-determined sales to OEMs will go away after the GST implementation. Also, there will be a reduction in their inter-state procurement costs as IGST will be creditable.

As per another report, GST implementation is expected to bring the unorganized players of the auto ancillary industry under the tax net, ultimately reducing the price gap between organized and unorganized players.

Battery companies like Exide which has about 40% of after-market share in revenues is likely to be benefitted. As per Auto Component Manufacturers Association (ACMA) report, the implementation of GST would open new prospects for the auto ancillary companies, which is expected to grow in double digits this year.

GST is expected to impact vehicle pricing, sourcing strategies, distribution costs and dealer profitability. It is expected that consolidation of these facilities would be beneficial for the overall economic efficiency of the auto industry.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.