Auto Slowdown: Industry Body Seeks Uniform 18% GST On Auto Components

Industry body Automotive Component Manufacturers Association of India has sought a uniform Goods and Services Tax for all auto components.

An 18 percent GST on auto components will help companies with their working capital borrowings, which could be used to invest in long-term assets, said ACMA.

"While the captains of our original equipment manufacturers areably representing the interventions that would be required to stimulate demand, we in the auto components sector seek assistance by way of a uniform GST rate of 18 percent," said ACMA India President Ram Venkataramani at the industry body’s annual summit in New Delhi on Friday.

According to Venkataramani, about 60 percent of auto components are taxed at 18 percent GST while the rest attract 28 percent tax.

"Since we are largely a B2B business, this (a uniform 18 percent GST rate) wouldn't have an impact on the government exchequer but would help our membership in managing their working capital borrowings, which could be better used to invest in long-term assets," said Venkataramani.

A limited survey of 70 listed companies for the first quarter of 2019-20 indicates that companies with well-diversified portfolios—be it across vehicle segments, market segments, product groups or different geographies—have performed better than others. "Exports form a significant component of this portfolio, and therefore we request that export incentives are encouraged," said Venkataramani.

The current Merchandise Exports from India Scheme is being recast keeping World Trade Organization's regulations in mind, and ACMA's request is to look at enhancing these benefits through the new input tax credit scheme being proposed so that the industry can become more export competitive, he added.

While maintaining that fast-forwarding implementation of Bharat Stage-VI emission standards and introduction of several new safety features has caused short-term pain, Venkatramani said the moves have allowed the Indian auto components industry to be treated on a par with global suppliers.

"This is also at a time when sensitive trade negotiations like Regional Comprehensive Economic Partnership are being carried out," he said.

Giving an account of the business aspect, Venkatramani said ACMA India's domestic OEM business grew 15 percent to $31.25 billion in 2018-19. India’s auto components industry currently employs 50 lakh people and contributes 2.3 percent to India's gross domestic product.

"Our domestic aftermarket grew 9.6 percent to reach a turnover of $10.1 billion while exports grew 17 percent to reach a turnover of $15.6 billion," the ACMA president said. However, since demand has been a challenge due to the auto slowdown, results for 2019-20 will be subdued, he added.