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GST puts the brakes on passenger vehicle sales in June

LiveMint logoLiveMint 02-07-2017 Shally Seth Mohile

Mumbai: Domestic passenger vehicle sales fell in June from a year ago as most auto makers dispatched fewer units to dealers ahead of the introduction of goods and services tax (GST), company data released on 1 July showed.

Auto makers in India count dispatches to dealers—not buyers—as sales. Cumulative sales of top five passenger vehicle makers dropped 9% to 159,938 units over the same period a year ago. India switched to a unified tax regime on Saturday.

Sales are expected to remain muted at least for a couple of months until everyone in the value chain—from manufacturers to dealers to buyers—become familiar with the new system. To be sure, the inability to avail of input tax credit on unsold stocks and spares has created some anxiety among dealers.

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Maruti Suzuki India Ltd, which makes one of every two passenger vehicles sold in the country, was the sole car maker that managed to post a modest rise in sales. The manufacturer of best selling Baleno and Brezza models sold a total of 93,057 units during the month against 92,133 units a year ago, the company said on 1 July.

Hyundai Motor India Ltd, India’s second largest carmaker by volume, saw sales drop by 5.6% to 37,562 units from a year earlier. This was despite the local arm of the South Korean car maker introducing several promotions typically seen at the end of the year. Rakesh Srivastava, director-sales and marketing at Hyundai Motor India, said he expects “a positive demand pull post the successful implementation of GST in the coming months as industry will witness heightened level of customers’ interest in a seamless unified single market.”

In sharp contrast, Toyota Kirloskar Motor Pvt. Ltd slowed despatches to ensure it does not have to offer schemes to liquidate inventory ahead of GST, said N. Raja, senior vice-president of sales and marketing at Toyota Kirloskar.  The maker of popular Fortuner and Innova Crysta models sold only 1,973 units during the month against 13,567 units a year ago, a sharp fall of 85%.

ALSO READ: GST to make luxury and premium car models cheaper

Passenger vehicles sales at Tata Motors also dropped 10% to 11,176 units over the last year.

Under GST, closing stocks of finished goods and inputs cannot be transferred to the new regime with full tax benefits. Assessee’s stocks older than one year can result in loss as full tax benefit is allowed only in cases where certain pre-defined conditions are fulfilled. Therefore, in order to minimize the loss on account of the transition to GST, firms across the manufacturing sector, particularly consumer-facing ones such as automobiles, consumer durables and packaged goods went on a sales promotions overdrive to liquidate stocks.

Sales at utility vehicle market leader Mahindra and Mahindra Ltd also dropped 5% to 16,170 units over the last year. “Our focus has been to minimize channel stocks to reduce the transition losses on account of GST implementation,” Rajan Wadhera, president, automotive sector, at Mahindra and Mahindra, said, adding the company is closely observing GST and believes once initial uncertainties are over, the new tax reform “is set to usher in a new era for the economy in general and the automotive industry in particular.”

Sachin Menon,  partner and head, indirect tax at KPMG in India, said industries across sectors will need to focus on gearing up for invoice-wise reporting from September and immediately address pricing policies, inventory management and transitional compliance to achieve tax efficiency and prevent loss of credit in the value chain. “With 80% of goods falling under 12% and 18% brackets leading to a fall in prices, GST will enhance buying power of consumers without real increase in incomes, which will in turn spur demand,” said Menon.

John Paul, president of the Federation of Automobile Dealers Association, an apex body for dealers, said, “The first day into the new tax regime has by far been smooth” for dealers with minor glitches in invoicing. He however, said dealers are concerned about the possibility of being unable to claim input tax on spares. “We have to stock spares for more than a year, not only for current models but also for the ones that have been discontinued. We are worried about the losses,” he said.

Automobiles attract a peak GST rate of 28%, which can go up to 43% because of cess depending on engine size and fuel type. Most auto firms said they will pass on GST benefits to customers.

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