According to Priyajit Ghosh, partner, indirect tax, KPMG in India, consumers may have to shell out more while buying used vehicles. “Under the GST, dealers are likely to pass on the additional tax burden to the consumers. However, bulk buyers may get some tax credit as invoices will include the taxed amount.”
“The new structure may increase the working capital of companies dealing in exchange schemes. While dealers who sell used vehicles within a month of buying them may not see the impact, delaying the process will increase working capital,” said Biren Vyas, partner, Grant Thornton India. Taking credit of the purchase tax in the same month will help them keep a check. The resellers market in India is currently pegged at 3.3 million units a year.
According to experts, since the current tax rules do not apply to the discounted value in the case of exchange of old vehicles against a new one, the tax paid remains lower. However, under the GST
regime, income tax credit against the discounted value will not be recoverable.
“According to our preliminary assessments, the new rules are in line with the existing ones,” said Sugato Sen, deputy general manager, Society of Indian Automobile Manufacturers. Various automobile manufacturers in the country that this newspaper got in touch with said they are currently assessing the impact of the proposed rules.
Manufacturers of consumer durables and smartphones are cautious of the impact the new rules may have on prices of their products. While a majority of the automobile manufacturers own large dealerships, the consumer durables makers are, however, less affected. The impact here will have to be dealt by retailers and dealers, who usually run the exchange schemes.
According to C M Singh, chief operating officer, Videocon, exchange offers constitute a mere one per cent of the total sales for major manufacturers of televisions, refrigerators, air-conditioners and washing machines. “Exchanges are mostly dealt at the dealer level. We don’t see any impact for us,” said Kapil Agarwal, vice-president, Whirlpool India.
Exchange schemes cover almost a fifth or 20 per cent of the products sold in the consumer electronics and home appliances space in the country. “Since the dealers get better prices for these secondhand products from third-party buyers of consumer durable items than what they get from manufacturers like us, they usually do not sell these items to us. So, it is on them now how they channelise the excess cost arising out of the increased tax under GST,” said a senior executive of a major consumer durables manufacturer.
Thus, most of these consumer durables manufacturers are less affected by this new norm. It is the dealers, retail chains and e-commerce players who may land in trouble.
New taxation norms under the goods and services tax may lead to price inflation for old vehicles, consumer durables and smartphones
Exchange schemes may attract higher tax as discounted value gets taxed
Old vehicles will be taxed on a par with newer ones; dealer to pass additional cost to buyers
Retail buyers will be paying more tax than bulk purchasers, who may avail of tax credit
Retailers and dealers of consumer durable and smartphones may need to tweak their offering
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