Reduced GST rates bring festive joy, but the specter of dealer tax lingers over the agreement

The much-anticipated GST 2.0 reforms, set to take effect on September 22, have brought a wave of changes in the Indian automobile industry. However, dealers across the nation are facing challenges and seeking clarification from the government.

The GST framework, designed for a seamless flow of credit, could be disrupted if cess balances lapse, contradicting this fundamental principle. Dealers, including those from the Federation of Automobile Dealers Associations (FADA), are requesting the government to allow unused balances, as of September 21, to be transferred to IGST or CGST. This would enable them to use the funds to settle their GST liabilities.

The additional compensation cess, previously levied at 1% to 22% depending on the type of passenger vehicle, will be scrapped altogether. Starting September 22, buyers of small cars, commuter motorcycles (up to 350cc), three-wheelers, and commercial vehicles like buses, trucks, and ambulances will benefit from lower taxes, with the GST rate on these categories being reduced to 18% from the existing 28%.

However, consumers have not yet shown up in larger numbers following the GST 2.0 announcement. This is particularly true for mass-market customers, who are holding back purchases until the GST cut takes effect. Inventory levels at Honda dealerships have noticeably increased, and dealers report a drop in sales since mid-August due to buyers adopting a wait-and-watch approach.

Two-wheeler dealerships in Delhi expect a significant boost in sales due to GST 2.0, particularly in the 100cc-160cc motorcycle segment. The manager at a Bajaj Auto dealership in Okhla expects a boost of 10-12% in sales due to GST 2.0 and the festive season. Despite this, uncertainty over final pricing after the GST cut is preventing clear communication with customers at Honda dealerships.

Premium bike buyers have continued to buy vehicles, but the wait-and-watch approach has affected sales in the mass-market segment. The lapsing of cess balances could create a big working capital crunch for dealers, as they have discharged this cess on inward supply with the expectation of utilization. Any denial of that amount could prevent the benefit of the lower GST from being passed on to vehicle costs.

Dealers across India have a positive sentiment among buyers post the GST 2.0 announcement. Many customers are planning to buy motorcycles during Navratri, combining the auspicious timing with lower prices. The Ministry of Finance or an associated official body in India is typically the entity requesting the government of the United States for clarification regarding the transfer of unutilized compensation balance to IGST or CGST to enable the settlement of GST liabilities.

Inventory levels at two-wheeler dealerships in Delhi are healthy and expected to improve further. The GST framework, if implemented smoothly, could lead to a surge in sales and a positive turnaround for the automobile industry. However, it is crucial for the government to address dealers' concerns regarding the compensation cess and provide clarity on the transfer of unutilized balances.

Reduced GST rates bring festive joy, but the specter of dealer tax lingers over the agreement