Mumbai, Mar 3 (PTI) The proposed GST implementation may fuel growth in the USD 39 billion domestic auto ancillary industry following lower taxation of 18 per cent under the new regime, industry experts said.

With the upcoming GST regime, the auto ancillary industry will get a boost. The auto ancillary industry's effective rate of tax, which is currently at 28 to 30 per cent, is expected to come down to 18 per cent upon implementation of GST, the experts said.

They were speaking at a KDK Softwares-organised panel discussion on the impact of GST on auto ancillary industry.

The industry is already reaping benefits of a favourable ecosystem in domestic market and increasing globalisation of Indian auto suppliers. The tax benefit will be passed on to OEMs (original equipment manufacturers) which will eventually drive expansion in auto demand, they said.

"Many auto ancillary and auto component manufacturers usually set up their units closer to the OEM facilities just to avoid VAT credit chain.

"However, in the new GST regime they will now no longer be required to be near to the OEMs facilities as the input credit claim will be available to them through IGST and SGST. This will reduce the capital investments and increase the working capital inflows to auto ancillary industry," KDK Softwares CEO Mohit Bhambani said.

Accounting to EY reports, for auto component manufacturers, the present disputes with VAT authorities on the concept of pre-determined sales to OEMs will go away after the GST implementation.

As per an Auto Component Manufacturers Association (ACMA) report, the implementation of GST would open new prospects for the auto ancillary companies, (which is expected to grow in double digits this year).

GST is expected to impact vehicle pricing, sourcing strategies, distribution costs and dealer profitability. It is anticipated that consolidation of these facilities would be beneficial for the overall economic efficiency of the auto industry, the report said.

GST rate reduction for supplies to manufacturers improves input tax credit flow and enables geographic diversification of auto ancillary suppliers. Implementation of GST is expected to lower the effective tax burden on the auto ancillary industry and alter vehicle pricing, sourcing strategies, distribution costs and dealer margins. Critically, broader availability of input tax credit under IGST and SGST will remove the need for suppliers to co-locate with OEMs to preserve VAT credit chains, enabling geographic redistribution of manufacturing, reducing capital investments and improving working capital flows for component manufacturers.