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Impact of GST on Yarn, Textiles, Processing and related sectors

textile industry GST 1

Overall GST seems to be in line with the expectations industry had envisaged, except for the fact, that man made fibres/synthetic fibre andyarns have not been treated at par with cotton and other natural fibres, giving scope of some kind of misrepresentation, play in invoicing and boost to cotton value chain instead of synthetic value chain, perhaps that was the need of the hour and government of India seems to have missed an opportunity .

Some of the feedbacks and early reactions to GST and its implementations are as:

Prashant Agarwal, Co. Founder & Jt. Managing Director, Wazir Advisors on Entire Value Chain Impact of GST:

1. Based on industry experience, following conversion ratios are used

a) From fiber to yarn , conversion factor of 2 is taken for cotton yarn

b) From manmade fiber to manmade yarn , conversion ratio of 1.4 is taken

c) From yarn to fabric conversion factor of 2 is taken

d) From fabric to garment at manufacturing stage, conversion of 2 is taken

e) From garment manufacturing stage to garment retail stage, conversion factor of 2 to 3 is considered for cotton garment and 1.5 to 2 is taken for manmade garment

Impact of GST in cotton value chain:

Impact of GST on Yarn Textiles Processing and related sectors

• As in value chain on cotton, GST is 5%, net impact will be positive, with more companies coming in  organized value chain, paying GST, to take credit in whole vale chain.

• The impact will be nullified to a larger extent, because of input credit from previous value chain and also credits taken from other inputs in the manufacturing process like, oil, dyes and chemicals, logistics etc.

• In garments sold above MRP of Rs 1000, an impact of 2-3 % price will come, which can be absorbed by branded players in present prices points

Impact of GST on synthetic value chain:

• The taxes remains same as cotton in whole value chain accept at fiber and yarn stage, where GST is 18%

• This higher GST at fiber and yarn stage will increase the price points by another 2-3 %

• But the major issue in not adopting fiber neutral policy, the investments needed by Synthetics industry will take slight hit in short term, but will be taken care in long term by increase in synthetics demand in market

“In totality GST and rates decided will be good for industry and will move industry towards more organized status and increased entry of bigger corporates in business in long term, which is needed to create jobs for the country.”

Ashok Chaudhry, Independent Consultant on Implementation

My opinion is based on a general view. Since the textile industry, starting from fibre to fashion, is very competitive and low margin products whether intermediate or finished, people associated with this industry are very innovative and hard working. These people have already started taking necessary steps to combat the impact of GST, after studying the details published. This industry would quickly adapt to changes coming without much impact.

K. D. Singh, CEO, Kanchan Textiles on Composite Mills vs Independent Units

textile industry GST 1

Composite mills would stand to gain, where all tax credits are pooled at one point...even service tax paid on telephone bills, transport, hotels etc, will come handy while discharging final GST on finish fabric i.e.5% unlike independent processors where ST is 18%....there won't be any adverse revenue impact on composite mills

Now there will be arm twisting on standalone units..like independent weavers and processors, being basically in unorganised sector and catering to job work...processors will try to take advantage of 18% service tax levied on textile processing...

R S Singh, Business Head, Blue Blends on Cotton Value Chain

We probably couldn't have bargained any better. 5% uniform rate in yarn, fabrics and 1000 Rs garments will mean no change in prices for the consumers too. Majority of output in unorganised garmenting sector falls in this MRP range. Yarn and fabrics' prices will be unaffected too. I expect that compliance rate will improve significantly in unorganised sector.

Garments' manufacturing in organised sector too will look up. Of course net tax rates have gone up here but it will be partly compensated by reduction in input costs and the resultant impact will be marginal.

This will of course help composite sectors, There had been an army of merchant manufacturers and unorganized players in Ahmedabads and Mumbais of India, they will be impacted severely by this.But just thinking loudly, the tax paid on processing job can be taken a credit off by the merchant manufacturers and can be utilised in payments of GST on fabric sales. Thus it may not harm at all. The catch is "value addition". If it is not adequate, they may face a situation where the entire amount of credit is not utilised. Otherwise, this should not have any impact at all.

To conclude, I am very happy about the provisions for the cotton textiles value chain.

Govind Sharda, CEO, Vishal Fabrics on Cotton vs Manmade

Tax slab on man made fibre will tilt manufacturing in favour of cotton fabric. There is a possibility of shrinkage of man made fibre spinning where India remains uncompetitive as compared to Chinese scales. On the cotton yarn front, disparity between the yarn producing states and consumers could create further employment opportunities in otherwise deprived states. However, value added functions like job work based textile operations need be checked into. Overall, the fabric industry would be forced to go for higher value additions to neutralize the costs whereas middlemen for apparel could be squeezing some of their margins to insulate end prices. Yes, the composite apparel manufacturers could have NIL impact. We need to examine the total provisions and for sure, many of the existing business strategies would call for re-structuring.

Pankaj Sharma, Sr VP Mktg, Spentex Industries Ltd on Yarn

Yarn business was already under tax regime so major fireworks will be watched in fabric business, Job work business of weaving, yarn dyeing, processing, embroidery etc.

However govt has been smart enough in creating the GST narrative around business circles in such a way that everyone has conceived this concept and is ready to undergo the labor pains of implementation

Yogesh Gaikwad, Dir, Society of Dyes & Chemicals (SDC), UK on Manmade Value Chain

I personally expected that GST would help doing business in India simpler. I have reasons for being disappointed. 18% tax on man made fibers would lead to confusion about what exactly is man made especially in blended fabric. A common slab of 5% across the textile value chain would have helped to ease the burden on already troubled business due to the 'adventurous' demonitisation . Business will now have to focus on getting invoices correct every time and avoid the vat liabilities which could be more than the profit they earn.

Pankaj Tibrewal, VP ( Exports), RSR Mohota Spg & Wvg Mills Ltd on ValueChain

From above apparently, it looks that excise duty + vat or s.tax has been added in most cases to arrive at GST , and by bringing fabrics under GST shall make this business recordable.

Rajeev Kathuria CEO, HUG Clothing LLP on Fabrics to Apparel and Retail

For textile value chain it is inflationary in its impact. Also various rates at different level only means resorting to malpractice to keep tax incidences lower .Tax on fabric stage in cotton value chain will increase input cost of garment manufacturers..and they will pass it on to retailers / wholesalers ... Tax of 12% on MRP over Rs 1000 MRP provides better competitive environment to corporate and mid size brands compared to unorganised players in this price band ....high rate will work as disincentive for tax compliance in this segment ....

Any small player working on mills fabrics can't keep MRP level below Rs 1000/- in today's economy

( even though they avoid marking MRP , as per governing rules , 50% mark up is considered for calculating MRP ...so any manufacturers selling over Rs 700/- is required to charge 12% ....more clarity required than available right now on this ) .This seems to be a half measure with an eye on uniform rates over 3-5 years horizon …Yet more info required to understand and reflect on its implication

K D Singh Tanwar, MD, Shree Sai creation on Twisting, Texturising and Dyeing of Synthetic Yarns

1) Input credit for packing material or coal or dyes & chemicals, may not be more than 3 to 4%.

2) That means we have to pay additional 9 to 10% out of GP.

3)Now under invoicing may come but even the consumer may not accept it.

4) Everyone will try to get over invoicing in buying and under invoicing in selling, which is a jam like situation.

5) Increasing rates may look like a mirage like solution.

Amit Jain, Consultant, on Home Textiles

Domestic Home Textiles has mainly 3 products, Bedsheet, Towels and Blankets.

1. In case of Bed sheets, the 100% cotton bed sheets will be marginally affected, as 80% are of MRP below 1000/-. The artificial or perceived pricing of bed sheets will become detrimental due to 12% GST instead of 5%. Fair pricing shall prevail. Higher GST of 18% on MMF, instead of 5% on cotton, should reduce sale of micro and pc bed sheets.

2. In case of towels, there shall be marginal benefit on price. Bulk of towels are below MRP of 1000/- and current VAT ranges from 0 in Maharashtra, Tamilnadu and West Bengal and bulk of other states having 5.5%.

3. The Blankets are mainly of 100% polyester. With 18% GST on fibre and 5% GST on Blanket below 1000/- and 12% above 1000/-, the prices shall increase or profit of Brands/ Manufacturers shall go down.

Overall it seems to make MMF costlier and reduce it usage.

Subhash Bhargava, MD, Colorant Limited on Dyes & Chemicals

18% of GST slab for dyes and chemicals is fine with our sector and we look at this as a positive step for organized industry, being part of textile value chain as the entire chain has come in GST net.

But in terms of textile, I think government has missed an opportunity to bring both cottons and synthetics to bring at par, giving possibility of misrepresenting blends. In any case, more details and notifications are expected to have more clarity on blends

Rajiv Varma, MD, DURST, Digital Printing Machines

All raw material for digital printing ink , paper , printer pre post treatment chemicals are under 18% gst .

If end product is under 12% then will job worker get credit back?

Ajay Kanwar, LCI Textile Solutions Pvt LTD , Director, Ex-MD Huntsman India on Dyes & Chemicals

Sir, mostly on dyes and chemicals, it's 18% and I think there is no major impact overall

Tarun Baxi, Independent Consultant on Exports

I am very positive about GST, yes there will be confusion for exporters till the notification come into force, but for export you have long period, Government must come out with clarification for exporters.

 

 

GST RATE final on GST Council Meeting held on 3rd June, 2017

Chapter No: 52, Cotton: 0%

Gandhi Topi, Khadi yarn

Chapter No: 52, Cotton: 5%

*Cotton, Cotton waste, Cotton sewing thread, Cotton yarn, other than khadi yarn, Cotton fabrics (5201 To 5212 )

Chapter No: 53, Other vegetable textile Fibres; paper yarn, woven fabrics of paper yarns

*Coconut, coir fibre [5305], Jute fibres, raw or processed but not spun : 0%

*All other vegetable fibres and yarns such as flax, true hemp, paper yarn, etc. [5301, 5302, 5303, 5305, 5306, 5307, 5308] Fabrics of other vegetable textile fibres, paper yarn [5309, 5310, 5311] : 5%

 
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