Chennai: Smaller manufacturers in the Hosur automobile cluster have started asking OEMs and suppliers to face working capital shortfalls due to the imposition of GST.

Under the new tax regime introduced on July 1, these entrepreneurs will have to pay a hefty 10 percent tax on their products. Merchants say they have to set aside funds for remittances every month, but customers (who pay the 28%) high tax rate) payments usually take $100 days.

“We have been representing Tier 1 companies and are facing threats of defaults from suppliers and OEMs (original equipment manufacturers),” said K Velmurugan, managing partner of JIT Auto Comp, a small manufacturer of stamped steel components.

Earlier, the component manufacturers were required to pay 17.5 cumulative excise duty and value added tax (VAT) of 17.5% on purchase of raw material worth Rs 10 crore. Offsetting input tax with the corresponding output tax meant that only the value added of the manufacturing activity was taxed. Now, under the GST regime, he has to set aside 28% of the profit from the sale of parts, but can only claim an input tax credit of 18%, which means a higher tax bill. The 28% tax is borne by the car or truck maker, but the purchase contracts are usually two to three months long, which puts a monthly tax burden on the parts maker and drains the company’s working capital.

Hosur cluster around 10,000 lakh Ashok manufacturers to Ashohok manufacturers to Ashohok manufacturers Leyland, TVS Motor, Volvo and Hyundai manufacturers to Union Finance Minister Arun supply Jaitley The letter raised their concerns. On Sunday, Jaitley and Commerce Minister Nirmalasitharaman discussed the impact of the working capital crisis at an inter-industry meeting.

Ranganath N Krishna, Managing Director, Grundfos Pumps India, told The Economic Times that the issue of the GST regime due to the disruption in cash flow was part of the brainstorming process, and that a number of tax anomalies (such as “taxing the same product for different purposes”) were also considered. This was part of the brainstorming process, he said. We use “all kinds of taxes”.