The government’s move to keep the Goods and Services Tax (GST) rates on various textiles — including cotton fibre — and low-priced garments roughly around the current levels will prevent any flare up in prices, industry executives said on Sunday. But their hope for a single rate for both natural and man-made fibres under the GST regime to correct a historical imbalance in favour of the cotton-based textile structure has been dashed. The GST rates on silk and jute fibres, however, have been kept at zero.
Although ready-made garments above Rs 1,000 each will attract a 12% GST, against the current tax incidence of roughly 7% in many states (a 2% excise duty and a 5% value-added tax), the input tax credit facility under the new regime will easily offset any perceived losses due to a higher tax rate.
According to Ashok G Rajani, chairman of the Aparrel Export Promotion Council and chief of Midas Touch Exports, the GST rates on garments are reasonable and could lead to some items becoming even cheaper in the new regime. As such, shirts below Rs 1,000, used by most Indians, will attract just a 5% GST rate.
While the government has kept the GST rate for cotton fibre at 5%, the same as now (although there is no excise duty on cotton fibre now, states impose a 5% VAT), it didn’t reduce the tax rate for man-made fibre and fixed it at 18%, against the current tax incidence of roughly 17.5%, including both excise duty and VAT.
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At present, while a 12.5% excise duty is levied on man-made fibres, cotton fibres attract none. The industry has been demanding 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).
According to OP Lohia, chairman of Indo Rama Synthetics, the GST should have one rate for all fibres and this disparity must end. Synthetic fibre is a poor man’s necessity, as cotton fibre is more expensive, he said.
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.
Confederation of Indian Textile Industry chairman J Thulasidharan hailed the decision to keep most of the textile and garment items at 5%. But he also pointed out that high rates of 18% announced for MMF, fabric and yarn, dying and printing units and embroidery items can lead to an increase in input costs and can adversely impact the entire textile value chain.