|
VAT was introduced in Tamil Nadu with effect from January 1, 2007. All manufacturers welcome the implementation of VAT in Tamil Nadu. The tax paid on purchase of raw materials was cost earlier in the TNGST regime and in the VAT regime it is input tax credit. To the extent of input tax credit the manufacturers can reduce the price of the product.
Input tax credit advantage is the key factor in the auto industry. Most of the players in the auto industry are big in size and they need to take extra care on every purchase to ensure that local VAT is suffered and input tax credit taken. Most of the auto manufacturers depend upon small manufacturers and they do assembly, quality check and inspection before delivery. Whether the small-scale parts manufacturers are registered or not the VAT on purchase of parts will be streamlined by the big manufacturer. Every small purchase has a VAT element and little drops of water make the mighty ocean.
The auto trade remains stiffly competitive. The VAT impact will make it stiffer. The ultimate customer can expect a price reduction in the sale price of the final product. In reality, due to stiff competition, most of the big players in the motor industry are playing around small margins and they are not in a position to share the VAT advantage with the ultimate users. In increase in the cost of man power, deployment due to BPO and other MNC operations considerably affected the other industries. To match the market trend and to retain the potentials a sizable amount is shelled out by the manufacturers in the motor industry. But, correspondingly, they are unable to reap the price advantage due to the hectic competition. So the impact of VAT advantage just helped them to breathe and is certainly not a big comfort. That is why we do not find big advertisements on price reduction due to VAT advantages.
If we look up the spare parts, the situation is different. The spare parts pass on so many tiny dealers and down the line it is distributed through unregistered dealers only. Hence, the ultimate user will have a big bank on the purchase of spare parts. The VAT introduced states have registered 13.8% aggregate increase in VAT revenue. This clearly says that the ultimate customers paid more on account of VAT.
Tyre retreading industry has got a boon in VAT. There was a price mismatch between organised and unorganised sectors in tyre retreading. After the introduction of VAT, the organised players have a definite edge over the unorganised. After the introduction of service tax on repairs and maintenance, the tyre retreading works contractors struggled to manage the impact. The small and unorganised players have taken advantage of the four lakhs limit.
Under the VAT regime, the big players are placed in a better position. They need to increase their local purchases and must take maximum advantage of VAT. The tread rubber manufacturers-cum-retreaders are in a much advantageous position than the others. Ultimately, VAT eliminates unorganised players from the retreading industry and helps the organised sector to capitalise on the huge market. Big players need to do good home work to reap this unique opportunity.
In a nutshell, VAT is a boon for motor trade and it is up to the manufacturers and tyre retreaders to capitalise on them.
K Baskaran
Manager – Accounting Division
Tandem Consulting Pvt Ltd,
Chennai.
Mobile: 9940088816
(The writer can be contacted at
feedback2vinod@yahoo.co.uk)
|
