GST impact: 2-wheeler firms brace for tepid June numbers

G Balachandar Chennai June 12 | Updated on January 27, 2018 Published on June 12, 2017

Though the GST rate on two-wheelers at 28 per cent is lower than the current tax rate, dealers say the benefits may not be passed on to consumers as prices have been hiked   -  The Hindu

Dealers opt for lower inventory

With less than three weeks to go before the Goods and Services Tax becomes a reality, there is a great deal of anxiety among different business segments.

In the case of the two-wheeler industry, dealers do not want to stock up vehicles due to uncertainties over tax payments in the new tax regime. This is expected to lead to lower factory despatches which will show up in June sales numbers.

Dealers have confirmed that they would prefer maintaining lower inventory levels this month. Bajaj Auto outlets in Tamil Nadu have told the company that they are limiting their two-wheeler offtake from the plants this month. This is due to a strange State tax payment schedule in TN.

In the existing (pre-GST) system, dealers in the State need to pay about 90 per cent VAT as entry tax the moment the vehicles are brought into their showrooms. The remaining 10 per cent is paid after they are sold.

“Assuming we take 100 vehicles this month, we would have paid 90 per cent as entry tax. However, if we end up selling only 70, the balance 10 per cent tax for these vehicles will be adjusted against the amount already paid for the 100 delivered,” says a Bajaj Auto dealer.

Hence, at any given point of time, dealers would have enough credit in sales tax. However, with GST coming in, there is no clarity from the Commercial Taxes department in Tamil Nadu on adjusting the credit available with them.

Hence, Bajaj dealers are taking limited numbers of motorcycles from the factory to adjust the amount left with the sales tax. “We have requested Bajaj to allow us to keep stock levels minimal and will confine ourselves to only some top-selling models and ensure that retails are decent,” says the dealer.

A Honda dealer confirmed that lower stock levels will be maintained this month due to lack of clarity on rates. “The base GST rate is not yet clear whether it will be 28 or 30 per cent,” he says.

Given that this is going to be a nationwide concern across all two-wheeler companies, sales are likely to be relatively tepid in June for all manufacturers including Hero, Honda, Bajaj, TVS and Yamaha.

Sales push

This is perhaps the reason why dealers are pulling all stops to convince customers to buy scooters and motorcycles now.

“Do your booking right now as prices might increase after July 1,” cautions a sales executive to a customer at a Chennai dealership.

Whether a price hike will actually happen is a moot point given that the GST rate for all two-wheelers is 28 per cent, which is actually lower than the present regime of 30.2 per cent. Only 350cc plus motorcycles will attract an additional cess of three per cent leading to an overall tax rate of 31 per cent.

“Actually, GST rate at 28 per cent should lead to a marginal reduction in prices of two wheelers. However, companies have already hiked prices and benefits are not likely to be passed on to buyers from July in the GST regime,” says a two-wheeler dealer.

It is also likely that the recent price hike was a way of negating the massive discounts offered in end-March when companies had to liquidate their Bharat Stage III two-wheeler stocks.

So manufacturers and customers are gearing up for a challenging transition time when GST becomes a reality soon.

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Published on June 12, 2017
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