Export of big cars, SUVs may lose speed under GST
The export of bigger cars and sport utility vehicles( SUVs)f rom India could slow under the goods and services tax (GST) regime, as companies are required to block substantial cash for paying the 15percentcess. Whilethiscanbe re claimed asa refund, the situation will turn more challenging when this cess is hiked to 25p ercent. Blocking sizeable funds in the process will bring down the competitiveness of companies likeVolkswagen, Nissanand Hyundai, amongothers, in
theexportmarket.
Exporters have the option of shipping cars without paying the GST or cess against a bond or letter of undertaking, but this is seen as a complicated process. Most companies therefore, prefer to pay the GST out of the input tax credit pool and claim a refund later. The challenge has come from the cess part, which, in this case, should be paid in cash.
Volkswagen, for instance, has opted for the second route of payment and then refund, but the company is upset. “The issue we are facing at the moment is that this facility (of refund) is not available on the GST Network portal yet. The second issue is that the cess (up to 15 per cent) is payable only in cash, which would mean blocking more funds, leading to cash flow issues. These inefficiencies need to be removed to become more competitive in exports,” said Andreas Lauermann, president & managing director at Volkswagen India.
This amount of cess is equivalent to 15 per cent of the sale price (in the case of bigger cars), which could also increase to 25 per cent, according to the latest proposal. Volkswagen is worried about the pace at which refunds will get processed. “While the government has announced 90 per cent of the refund within a few days, our experience shows that this time frame invariably goes beyond three months. We hope for a quicker refund,” said Lauermann.
Since export is not a one-time activity, the companies may always have large funds blocked in the process. The German auto major ships 7,300 units of the Vento sedan every month from India. The export price of this vehicle is not known, but if one takes the average domestic price of ~9-10 lakh, it means the company will block almost ~1.5 lakh on the export of every unit until refund.
Hyundai, the second-biggest exporter, could see the cost going up on the Creta SUV, of which it ships 4,300 units a month. Nissan ships about 1,500 units of its sedan Sunny a month, and it will also have to block funds. Toyota’s Etios sedan also attracts 15 per cent cess.
David Schoch, chief financial officer at Ford India, the biggest exporter of cars from India, said things have ‘certainly become complex’ with the GST. “The quantum of cash needed by the businesses to meet the revised compensation cess has become significantly higher. While the new norms block more working capital for auto exporters, the process of claiming refunds is also not becoming easy. Blocking significant working capital for an extended duration, especially at a time when interest rates are high, doesn’t augur very well for any company,” said Schoch.
Abhishek Jain, a partner at EY, said the government had clarified that even for compensation cess, exports would be zero rated. That is, no compensation cess applicable for goods exported under bond. “However, the situation which remains a problem is export under the rebate option, where many exporters utilise excess input GST credit to pay integrated GST (IGST) on export and then claim a rebate/refund of the IGST paid. In this model, the compensation cess would have to be paid in cash, and then claimed as a refund, resulting in cash flow issues,” he said.