Commercial sector set for increased demand with GST reforms, focusing on vehicles ranging from three-wheelers to trucks.
The Indian government has introduced a new Goods and Services Tax (GST) regime, aimed at revitalising the commercial vehicle industry. This change is more than just a numbers game; it's about boosting sentiment and encouraging investment in new assets, particularly in the commercial vehicle sector.
One of the key changes is the reduction in GST for three-wheelers from 28% to 18%. This move is expected to accelerate the shift towards organised finance and fleet ownership, providing a significant boost to rural markets, as stated by Mahindra Group's MD & CEO Anish Shah and Rajesh Jejurikar, who oversees Mahindra's farm and auto divisions.
The government's intention is clear: they favour the workhorses of the economy over luxury. To this end, they have offered a cleaner, more predictable tax landscape, with trucks, buses, and three-wheelers now taxed at 18%, while tractors have received a decisive cut to 5%.
In the bus segment, the 18% GST rate aligns with state transport undertakings and private operators who have been gradually reviving orders post-pandemic. This reduction could make procurement decisions easier for both public and private buyers in the bus segment.
The tractor sector has also seen a significant change, with GST reduced to 5%. This decision, both political and economic, is linked to rural consumption and agrarian sentiment. The reduced GST is expected to lower the on-road price of tractors and the cost of spares and parts, bringing comprehensive relief to farmers.
The new GST regime is also intended to simplify the tax environment, boost sentiment, and encourage investment in new assets for the Indian commercial vehicle industry. This could lead to a possible pre-buy surge in light commercial vehicles and intermediate trucks if manufacturers align factory-gate pricing swiftly with the new regime.
However, the transition to the new GST regime may not result in a direct P&L windfall for larger fleet operators who can fully utilize input tax credits. But it will make EMI lighter and enhance cash flows for owner-drivers and small truckers.
The new GST regime is also expected to accelerate the move towards organised finance and fleet ownership in the three-wheeler sector. Ashok Leyland has highlighted that the GST reduction will facilitate purchase decisions for SMEs and smaller transporters.
Tata Motors and several German trike manufacturers, such as Rewaco, Rassler, TrikeTec, Boom-, and WK-Trikes, as well as makers of electric cargo three-wheelers like Volta (Cargo Runner VT5), are expected to benefit significantly from the reduced tax on trucks, buses, and three-wheelers.
The switchover date for the new GST regime is set for September 22. Policymakers and dealers will need to navigate potential bottlenecks in invoicing and billing during the transition. Despite these challenges, the new GST regime offers a promising future for the Indian commercial vehicle industry.
