Auto majors in GST gear

Companies hope that GST will simplify the issue of accumulation of VAT credit and refund

Finance and information technology (IT) departments in major automobile companies are working overtime for transitioning to the goods and services tax (GST) regime, which is likely to be rolled out from July 1. Detailed training calendars have been put in place for the dealers and vendors who will also be taken through a series of simulation exercises.

“We created a cross-functional team (CFT) within the organisation, (taking people) from various business verticals (finance, IT, marketing and sales, logistics, supply chain). Our team understood regulatory requirements and mapped the same with various business processes,” said Ajay Seth, chief financial officer at Maruti Suzuki, the country’s biggest carmaker. 

“Many proactive actions were taken internally as well as externally through industry associations like CII (Confederation of Indian Industry) and Siam (Society of Indian Automobile Manufacturers),” Seth said. Maruti’s top leadership is regularly reviewing the CFT’s work.

Sport utility vehcile major and tractor manufacturer Mahindra and Mahindra (M&M) said it was working towards organisational restructuring and re-skilling its executives to deal with the GST. “There are many touch points in the industry which need to be geared up. Since it involves a paradigm shift in indirect taxation, and not merely an incremental change, we need to consider issues relating to sourcing, logistics and distribution. All these need to be integrated with channel partners; in our case, the vendors and dealers. We have significantly progressed internally and our IT systems are being tested for various situations,” said V S Parthasarathy, group CFO and group CIO at M&M. 

Companies, however, do not see any reduction in the number of component vendors. Automakers usually deal with a few hundred component vendors. Parts are sourced for different makers and assembled to make the final vehicle. 

“Suppliers are our long-term partners in co-creating value for customers. We follow very robust process in supplier evaluation and selection. Many factors are considered in having multiple suppliers. I do not foresee any major change in the supplier base due to the GST,” Parthasarathy added. 

Due to complexities involved in the transition, companies have relied on help from external agencies. Seth said Maruti has taken help from different external experts, such as subject matter experts and legal experts on interpretation issues and the Big 4 consulting firms on processes-related issues.

Companies hope that the GST will simplify the issue of accumulation of value-added tax (VAT) credit and refund. Today, most of the purchases are done from Haryana-based vendors with payment of local VAT at four per cent, whereas most sales are done on inter-state basis on which central sales tax (CST) is one per cent against C-Form, explained Seth. This involves administrative work of preparing documentation and arranging refund of VAT from the Haryana government. Seth suggested that under the GST, full IGST will be applicable on inter-state sale and, therefore, output tax would be more than the input tax credit and solve the issue of excess input credit totally.

Companies still think that there could be some more issues to contend with as they move to the new system. “The industry awaits more clarity in terms of a decision on final rates, the GSTN portal testing and some of the provisions etc. However, these would be overcome as we move forward,” said a spokesperson at Hero MotoCorp.

NEW ORDER

• Training calendars in place for dealers and vendors 
• Organisational rejig and re-skilling going on
• External experts being used for better understanding
• Reduction in rates and additional purchase demand expected