The Federation of Automobile Dealers Associations (F A D A) on Thursday said that the recent amendment made by the government in Section 49 of CGST (Central GST) Act, by introducing new section 49A, will lead to an unwarranted blow for the auto retail sector.
According to the retail association, the amendment will impact the method of tax payment and therefore, have major impact on the cash flow of auto retail industry while discharging its tax liabilities.
The amendment, which comes into effect from February 1, 2019, will see the IGST (Integrated GST) credit to be first utilised and only when such credit is exhausted will credit of CGST and SGST (State GST), if any, be utilised against output tax liability.
A majority of auto dealers purchase vehicles from OEMs on IGST and sell it to the end customers on SGST which they will not be able to set off by utilising the existing credits as according to the new law the IGST has to be used first for setting off tax liability, followed by CGST and the remaining for SGST.
According to the FADA statement, the amendment will create an additional requirement of working capital to around Rs 1 crore for four-wheeler dealers and Rs 50 lakh for two-wheeler dealers on a monthly basis (estimated) for 15,000 auto dealerships across the country.
FADA said that at present the automobile dealers in the country are faced with following specific hardships: blockage of ITC available in books of account; need for additional working capital to match blockage of ITC; additional cost of working capital in the form of interest and reduced profitability.
The Rs 5 lakh crore automobile retail trade is already reeling under the pressure of unexpected low sales from the start of the festive season from September 2018 and the de-growth has continued up to February 2019. This has further increased and coupled with high inventory build-up, high insurance cost, squeeze in liquidity from NBFC and banking institutions have already dented the financial health of auto dealers.