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GST from the textile industry perspective has both highs and lows

Undoubtedly, India’s textile industry has been one of the largest contributors to the country’s exports and provided employment to several thousands. The government has so far given incentives to the textile industry through tax exemptions and incentive schemes, this has brought down the tax rate. The latest incentive for the textile industry is the Rs 6,000 crore booster package announced in June. This has increased duty drawback significantly.

However, now all eyes are on the most awaited indirect tax reform, GST, On the positive side, GST would bring in uniformity and a level-playing field for textile players. The industry is plagued with several issues including classification disputes (fabric versus garment), differential taxation of cotton and man-made fibre, higher rate for composite mills than power looms, and so on.

Considering the textile industry is tilted towards domestic market with the industry coming under the GST net, domestic textile players would be able to take full credit of input tax as their sales would be liable to GST. This will reduce the cost of capital investment and encourage domestic textile players. The new tax regime should positively influence exporters, as exports would be zero-rated and input tax credit would be fully available to textile exporters. But the applicable duty drawback scheme at high rates will have no an important role to play under GST which could be a dampener.

On the down side, the proposed GST rate of 12 per cent is likely to have a negative impact on the industry, the worst being the cotton value chain which is currently sees zero excise duty under the optional scheme. The textile industry also sees several exemptions (central excise and VAT exemption) through the value chain, thereby reducing tax incidence to an average 8.9 per cent. Additionally, the current rate of tax on branded apparels is much lower than the proposed 12 per cent GST.

 
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