Small Parts Mak­ers Skid on Higher Taxes

The Economic Times - - Companies: Pursuit Of Profit - Bha­rani.Vaitheesvaran @times­

Chen­nai: Small man­u­fac­tur­ers in Tamil Nadu’s au­to­mo­tive clus­ter in Ho­sur have be­gun send­ing mis­sives to orig­i­nal equip­ment man­u­fac­tur­ers and sup­pli­ers about work­ing cap­i­tal short­age ush­ered in by the in­tro­duc­tion of the goods and ser­vices tax (GST).

Th­ese en­trepreneurs have to foot a 10% higher tax on prod­ucts un­der the new tax regime launched on July 1. They have to set this aside for re­mit­tance every month, but pay­ments from clients — who bear the higher tax rate of 28% — usu­ally takes 100 days, such busi­ness­men said.

“We have rep­re­sented to Tier I sup­pli­ers and even OEMs (orig­i­nal equip­ment man­u­fac­tur­ers) that there is a threat of de­fault,” said K Vel­mu­ru­gan, manag­ing part­ner of JIT Auto Comp, a small man­u­fac­turer of pressed steel com­po­nents.

Ear­lier, for raw ma­te­rial worth ₹ 1 crore pur­chased, the com­po­nents maker would pay ₹ 17.5 lakh in a cu­mu­la­tive levy of 17.5% of ex­cise duty and value added tax (VAT). Set­ting off in­put tax against an equiv­a­lent out­put levy, he would pay tax only for the de­gree of value-ad­di­tion in his man­u­fac­tur­ing. Now, un­der the GST sys­tem, he needs to set aside 28% of the pro­ceeds from his com­po­nent sale, but can claim in­put credit only to the level of 18%, mean­ing higher tax outgo.

Although, it is a car or a truck maker bear­ing the 28% levy, pur­chase con­tracts are usu­ally 2-3 months long, putting the pres­sure of tax re­mit­tance on the com­po­nent maker every month and drain­ing that firm’s work­ing cap­i­tal.

Nearly 1,000 man­u­fac­tur­ers in the Ho­sur clus­ter, sup­ply­ing to ve­hi­cle mak­ers such as Ashok Ley­land, TVS Motor, Volvo and Hyundai, have rep­re­sented their prob­lem in a let­ter to Union fi­nance min­is­ter Arun Jaitley.

The ef­fect of work­ing cap­i­tal crunch was also dis­cussed at a meet­ing in­dus­tri­al­ists had with Jaitley and com­merce min­is­ter Nir­mala Sithara­man on Sun­day.

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