Despite further delays to the proposed implementation of a new general sales tax (GST) regime in India, which would eliminate state-enforced cross-border taxes and replace them with a unified, more efficient system, carmakers are responding positively to the transformation of the fragmented automotive supply chain the new system promises in the country.
Plans for the GST bill to be tabled before the closing of the current session of parliament yesterday were once again delayed as state governments requested more time to study it, meaning the new April 2011 deadline might not now be met.
Under the current tax system charges are made on the interstate sale of goods, encouraging companies to hold separate inventories in each state despite the inefficiencies, extra management and warehousing costs this adds to the supply chain. It often means that, after central and state taxes, goods that cross state borders can be subject to up to 30% tax by the time the product reaches the consumer.
“As everyone knows, India is a maze of taxes that vary in form and complexity from state to state,” said Renault India spokesperson Ashish Sinharoy. “A GST regime would be of immense benefit to the manufacturing sector, since it would ease the documentation process and, due to lower levels of multiple taxation, eventually benefit the consumer.”
Renault inaugurated production at its new Alliance plant with Nissan in Chennai in May and, as this is its only plant (not including its recently annulled joint venture with Mahindra) it has to transport cars to every state in the country, with customers in those states having to pay varying prices for the same car depending on the state in which they are bought.
“With the GST environment, the multiplicity of taxes will disappear and customers across states will hopefully be able to enjoying a greater degree of pricing parity for the same cars,” Sinharoy told Automotive Logistics News.
The removal of the cross-border taxes is predicted to allow mega-warehouse and logistics hubs, and lead to the introduction of 20-tonne, 65 cubic metre trailers, all increasing efficiency in the supply chain.
“The new regime will promote giant warehouses in India,” confirmed Adani Logistics spokesman Umesh Bhanot, “and the concept of regional distribution centres for automobiles will take root as a consequence. We at Adani are planning to leverage our land availability at various cargo basins to offer distribution centres to OEMs. These can be used for cars and parts and can also have PDI facilities. We also plan to use railway land under government policy as auto hubs.”
As previously reported, the Indian government has already been pursuing infrastructure projects including the setting up of an $11 billion debt fund to address the country’s poor transport infrastructure, including the building of ports, roads and bridges (read more here).
“When you club these developments with the implementation of an even tax regime across the country, it will make life much easier for industry,” said Sinharoy. “There will be a definite move towards the creation of hub-and-spoke warehousing, and logistics, which will increase efficiency and lower costs for Renault. But [they] will eventually benefit the [end] customer also, as it would give us better leverage in pricing our cars more competitively.”
Despite the delays, Renault remained positive, looking forward to the financial benefits the new system promised both itself and its logistics providers. “Some delays were expected, given the demands and requirements of various states, but the team leading the GST implementation is working its way through the political and regulatory maze, and we expect all major issues to be resolved soon,” said Sinharoy.
