1. Budget 2017: GST rollout uncertainty continues, ball in Arun Jaitley court over textile sector excise duty

Budget 2017: GST rollout uncertainty continues, ball in Arun Jaitley court over textile sector excise duty

As uncertainties linger over the actual date of the rollout of the goods and services tax (GST) regime, the textile industry has asked the government to bring parity in the excise duty structure of man-made and cotton fibres in the coming Budget itself.

By: | New Delhi | Updated: December 22, 2016 7:19 AM
At present, while a 12.5% excise duty is imposed on man-made fibres, cotton fibres attract none. The suggestion was made at a pre-Budget meeting with finance minister Arun Jaitley on Tuesday. (Reuters) At present, while a 12.5% excise duty is imposed on man-made fibres, cotton fibres attract none. The suggestion was made at a pre-Budget meeting with finance minister Arun Jaitley on Tuesday. (Reuters)

As uncertainties linger over the actual date of the rollout of the goods and services tax (GST) regime, the textile industry has asked the government to bring parity in the excise duty structure of man-made and cotton fibres in the coming Budget itself.

At present, while a 12.5% excise duty is imposed on man-made fibres, cotton fibres attract none. The suggestion was made at a pre-Budget meeting with finance minister Arun Jaitley on Tuesday.

The industry was under the assumption that with the introduction of the GST regime, its demand for erasing the duty gap could automatically be addressed, said a senior government official. However, with the Centre and states yet to iron out differences on several sticking points, analysts have ruled out the introduction of the new indirect tax regime at least before September 2017.

The industry has been demanding a reduction in the excise duty on man-made fibres, saying such a disparity is preventing domestic synthetic fibre producers from scaling up operations. The huge duty difference has ensured that India’s textile market remains cotton-driven, in a stark contrast with the trend globally, apart from eroding the country’s export competitiveness in the man-made fibre segment. While man-made fibres account for around 60-70% of the world’s total fibre consumption, they make up for just 30-40% of Indian fibre demand (with cotton textiles contributing the rest).

OP Lohia, chairman of Indo Rama Synthetics, told FE that since the GST is unlikely to be a reality before September, the government should, in the least, cut the excise duty on man-made fibre to 6% from 12.5%.

It would also set the stage for the levy of a 5% duty for both cotton and man-made fibres under the GST regime, as many are expecting, he said. Synthetic fibre is a poor man’s necessity, as cotton fibre is more expensive, he added.

The excise duty on man-made fibres, which was as low as 4% in 2009-10, was raised by the previous government. This came as a shocker to synthetic fibre producing companies that had invested much in expanding capacity to cater for growing domestic demand for man-made fibre, Lohia said.

Also, as Lohia pointed out, the hike in the excise duty massively dented growth in the synthetic fibre segment—from roughly 10% in 2009-10 to a meagre 0-5% annually in recent years.Even the textile ministry has supported the industry’s contention in recent years.

FE had earlier reported that in a presentation to Prime Minister Narendra Modi in 2014-15, then textile secretary SK Panda had listed “rationalisation” of duties on man-made fibres as one of the eight short-term initiatives the ministry wanted to be addressed under the ‘make in India’ programme.

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