GST WILL FUEL THE GROWTH OF AUTO ANCILLARY INDUSTRY

Indian Auto Ancillary Industry worth US$ 39 billion, to   grow by 8-10 per cent in FY 2017-18.

Editors Synopsys:
•Auto Component Industry in India has achieved exports worth US$ 10.8 billion
•GST will reduce the cost as the effective tax rate from 28-30 % presently will be 18%.
•There will be no need to setup facilities closer to Auto OEMs for VAT credit claims
•GST will be beneficial for the overall economic efficiency of the auto ancillary industry

KDK Softwares organised a panel discussion of industry experts and CAs to understand the impact of GST on auto ancillary industry in India. With the upcoming GST Regime, the US$39 billion Auto Ancillary Industry which complements the auto Industry OEMs, is all set to be fueled with the growth factors. Auto Ancillary Industry is already reaping due to a favorable ecosystem in domestic market and increasing globalization of Indian auto suppliers.
Auto ancillary industry’s effective rate of tax which is currently at 28 to 30 % is expected to come down to 18 % upon implementation of GST. However, this benefit will be passed on to OEMs which will eventually drive expansion in auto demand. It is also expected to improve the price competitiveness of the organized players in auto ancillary domain.

Mr. Kapil Goyal, MD of KDK Softwares Pvt. Ltd. said, “Many auto ancillary and 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 they will now no longer be required to be near to the OEMs facilities as the input credit claim will be available to them through IGST and SGST. This will reduce the capital investments and increase the working capital inflows to auto ancillary industry.”
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.
The major impact of GST regime as per the EY report, on the auto ancillary industry will be –
1)Increase in cash outflow, on imported goods and services, as well as domestic services.
2)R& D cost is not likely to be subsumed- which will be an additional cost.
3)Increase in cash outflow on interstate stock transfers from factory to warehouse due to IGST, valuation will also be a challenge.
4)Disputes with VAT authorities on Pre-determined sales to OEMs to go away.
5)No accumulation of SAD credits – Negative
6)For After-market categories like Battery sales, the concept of MRP valuation for Excise purpose will go away.
As per another individual report by Outlook, 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, The Battery companies like Exide which have approx. 40 % of the After Market share out of the total revenues are 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 anticipated that consolidation of these facilities would be beneficial for the overall economic efficiency of the auto industry.
Some Facts about Auto component industry, as per ACMA-
About KDK Softwares (I) Pvt. Ltd.
Established in 2003 as Software Development Company, KDK Softwares (I) Pvt. Ltd. is today, a mature and fast growing company committed to provide reliable and cost-effective Software solutions to Tax Professionals and SMEs all over the Nation. Head Quarter based at the Pink City of India Jaipur, KDK Softwares emphasis on quality, world-class human resources and cutting edge solutions drive its commitment. With a successful track record of serving over 20,000 Satisfied Customers including Tax Practioners to Small & Medium Corporate, KDK Softwares brings the benefits of working with a partner with software skills, networking expertise, project management experience and domain knowledge in every aspect of statutory compliance.