24% GST rate would be good for govt, industry: Bajaj Auto

Q: Yesterday we had a couple of experts telling us that it is a very minimalist GST plank that has been put up by the government simply because of the opposition and once the GST Council meets and decides the revenue neutral rate it could take a long time. If it came something like mid 20s, 25 percent or thereabouts, would that harm you or help you?

A: It is unfair for someone to make those statements. I think all of us were looking forward for the GST to come in. Given the problems that the government had, it is a very good beginning and I would congratulate the government for doing this.

There are road blocks, we have seen the plan of GST coming in for the last three-four years and at least we are seeing the end of the tunnel. So, one, I am very happy about introduction or likelihood of the GST coming in and I would congratulate the government. Again, I would say that this is basically the start, it is not the end so you need to give time for the GST to set in and materialise. Maybe right now it is a bit of a compromise no doubt.

The 1 percent additional charge that they are talking about is definitely not in the right spirit of GST but I would like to grant them that and this is one of the price that you pay for the country if they want to move into GST. So, I am very happy about the fact that the Constitutional Bill has been amended paving the way for GST.

Q: How much of an improvement or a difference will it make to operations if you can give us the positives when GST comes through?

A: Today for example, in the case of motorcycles, the effective tax rate if you take into account the fact that there is 12.5 percent excise duty, there is a further 1 percent on the natural calamity cess, you have a 0.125 percent on the auto cess and then you have a compounded 2 percent central sales tax (CST) and a compounded 12.5 percent local tax, the effective tax rate comes to somewhere near about 30 percent plus.

Now we don’t know what the revenue neutral rate is, there are different figures floated around and as Arun Jaitley mentioned 27 percent is just someone who was quoted but the revenue neutral rate has to be decided still.

Therefore, 24 percent would be good both for the government, for the country and for the automobile industry and gradually, as GST sets in and you get the entire benefit of the reform, the tax flowing down to 20 percent over a period of three years is absolutely a right approach and a right rate.

Q: This 1 percent additional duty is going to come on inter-state supplies, not on inter-state sales. Probably, the GST Council will be prevailed upon to change it to inter-state sales but at the moment even if you move it from your depots to your own depots in Karnataka, in Andhra Pradesh or Gujarat you are going to be paying that 1 percent additional tax. Will that be terribly onerous?

A: Not at all. This is because even today, if you move a part to a particular depot, the local sales tax, there is a penalty that automatically gets imposed.

Q: It is only if you sell. For instance now it is only inter-state sales that is taxed isn’t it, in the days to come under the current GST inter-state supplies will also be taxed.

A: No, today when you are procuring parts from within Maharashtra and you are producing goods that are sold outside then you get the full set off. However, when you transfer it through the depot then there is a penalty levied by the Maharashtra sales tax for depot transfers and so, this is a tax that automatically comes in.

This 1 percent tax for depot transfer and especially since the fact that Jaitley has mentioned that it is for two years, it is not something that I would get unduly concerned about.

Q: What are the current difficulties that you are facing while doing business outside the state of manufacturing and once GST sets in how much easier will it become?

A: The first thing that GST does for us is one expects the lower tax rate that is very clear; that is on the tax part. However, on the pure operation front today, I would say that because of particular vendor who is extremely good vendor is based outside the state of Maharashtra, I hesitate to procure material from him because there is a penalty of 2 percent CST which is not vatable.

With the situation of this GST coming in, it becomes a level playing field and the whole country effectively becomes a free trade zone. So, today I can procure good material, quality material from a vendor in Maharashtra, Tamil Nadu, Haryana or from any other place without levying the 2 percent CST. Hence it becomes very easy on the input side for procurement.

The second part is the amount when we sell vehicles to the dealers across the state, you land up in a lot of other hassles like getting the C-form from the dealers, entry tax, road permits, etc. That will get completely eliminated.

Third is and I think this is much more relevant for the auto sector, is on the spare part business. With the GST coming in and when one sees hopefully that the implementation of GST is very good and in form, you will land up in situations where the sales spare parts that are being sold from more from the company to the distributors and retailers you normally get a lot of spurious parts getting into the system because these are not tax paid.

Retailers will always insist on a tax paid invoice and therefore, the spurious parts or the parts that are coning in without tax bits are avoided. So, that is good for the industry for its spare part sales as well.