The Goods and Services Tax (GST) which is considered as the biggest economic reform in India, completed one year of implementation on 1st July 2018. I congratulate Hon’ble Prime Minister, Hon’ble Union Minister of Finance and all the concerned policy makers and tax administrators including GST Council for its successful implementation. GST is aimed to abolish multiple taxes, including Central taxes such as excise duty, services tax, countervailing duty and state taxes – including value added tax, octroi and purchase tax and unite the country under a “one nation, one tax” rubric. The GST was implemented to bring uniformity in tax structure, transform the way the business is done and transfer finished goods and stocks from one State to another State in a hasslefree manner.
This was a historic movement for Indian textile industry as a large chunk of the industry works under the unorganised sector and was not under the ambit of proper tax structure. Textile manufacturing and trade of the country is still under stress for reasons related to the ongoing transition in the domestic economic environment. While the first year of GST implementation was challenging for the textile sector, the willingness and ability of the policy makers and tax administrators to rise up to these challenges was encouraging and welcoming. I take this opportunity to thank Hon’ble Union Minister of Textiles, Smt Smriti Zubin Irani for her kind support to the textile and clothing industry in addressing industry’s plea and resolving many GST issues.
With the implementation of GST, textile sector which had largely remained tax exempted in the earlier tax regime has been subjected to tax, although at a lower rate. Under the GST regime, textile commodities fall under the 0% to 18% tax bracket. At fibre level, silk attracts GST of 0%, cotton attracts a GST of 5% while for MMF, the GST is 18%. GST for MMF yarn is 12% and other yarn is 5% and GST for fabric is 5%. For garments below Rs.1000/piece, which is generally considered as economy class products, the rate of GST is 5% which is 12% in case of garments value exceed of Rs.1000/unit.
Thus, the major inputs required for MMF textile products such as MMF Fibre and Yarn attracts GST @ 18% and 12 % respectively, whereas output is attracting GST @ 5% at the fabric stage. This has resulted into inverted duty structure (wherein rate on inputs is being higher than the output supplies) and severe blockage of working capital. Hence, GST council in its 28th meeting on July 21, 2018 recommended for refund of accumulated Input Tax Credit (ITC) at Fabric stage which is a big relief to the MMF textile sector. However, the recent Notification issued by the Government allowing refund of accumulated credit for textile products is a conditional notification wherein it is indicated that “the refund shall apply to the input tax credit accumulated on supplied received on or after the 1st day of August, 2018, and the accumulated input tax credit lying unutilized in balance, after payment of tax for and up to the month of July 2018, on the inwards supplies received up to 31st day of July, 2018, shall lapse”. This has sent shock waves across the industry as it will lead to huge losses. The industry feels the same could have been adjusted against GST liabilities.
The textile industry has been badly affected post GST, which is visible from the continuous rise in textile and clothing imports and decline in apparel exports. It is noteworthy that the imports of all the valueadded products, viz., Yarn, Fabric, Garments, Made-ups and Home Textiles have grown significantly. This is creating a big issue for the domestic manufacturers as post GST, the effective import duties have come down steeply, thus, making imports cheaper for the domestic industry by 15-20%.
The Government has taken various initiatives and addressing many issues concerning textile and clothing industry. However, there are still some pending issues which needs early resolution. CITI has been representing to the Government on all the major issues concerning Textile and Clothing Industry. Nevertheless, there is a need to reduce GST rates on man-made fibre as it is a long pending industry demand and would further ease out pressure on the MMF sector. Apart from that, setting-off IGST paid on import for utilization of MEIS Licenses may be allowed.
We are hopeful that the Government of India and GST Council in particular will address the pending issues and enable the textile industry to bounce back to a higher growth trajectory.