GST regime likely to ‘erase’ disparity in textile duty rates

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New Delhi | Updated: August 04, 2016 7:24 AM

As the country braces for a goods and services tax (GST) regime, the man-made textile segment, long neglected by policy makers, finally expects a “level-playing field” vis-a-vis cotton textiles.

The industry has long been complaining that the duty disparity is preventing domestic producers from scaling up operations and, consequently, hurting India’s export competitiveness in man-made textiles. (PTI)The industry has long been complaining that the duty disparity is preventing domestic producers from scaling up operations and, consequently, hurting India’s export competitiveness in man-made textiles. (PTI)

As the country braces for a goods and services tax (GST) regime, the man-made textile segment, long neglected by policy makers, finally expects a “level-playing field” vis-a-vis cotton textiles.

At present, while man-made fibres attract a 12% excise duty, cotton fibres attract none. This duty disparity has distorted the domestic consumption pattern in favour of the cotton fibre, contrary to the global trend.

Although the actual GST rate applicable to textile and garment products will be announced in due course, senior textile industry executives say the current disparity in the excise duty rates of cotton and man-made fibre will be “erased”, unless the government decides to give some exemption to cotton fibres. Industry executives expect a GST rate of around 15%, if the peak rate is 18%, arguing that textile and garments are essential items.

“Man-made fibre-based products will be more competitive vis-a-vis textiles items based on cotton fibre. This will be a good policy push, in sync with the global realities,” said noted textile expert DK Nair, who is also an adviser to South Indian Textile Mills Association. However, both cotton and man-made fibre are also subject to 4-5% state VAT, which will be subsumed by the GST.

However, if the duty treatment of all cotton and man-made fibres remains the same, prices of textile items made of cotton fibre could rise a tad, Nair added. But equal tax treatment will give a push to man-made fibre production and subsequent exports.

The industry has long been complaining that the duty disparity is preventing domestic producers from scaling up operations and, consequently, hurting India’s export competitiveness in man-made textiles. This is because while man-made fibres account for around 70% of the world’s total fibre consumption, they make up for less than 30% of India’s demand.

The government in June announced radical changes to labour laws, apart from some concessions to the garments sector, aimed at boosting exports of textiles and garments by $30 billion over the next three years from $40 billion in 2015-16. Last year, the textile ministry had recommended a reduction in the excise duty for the man-made textile sector to 6% from the current 12%. However, such a step was never approved by the government.

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