Mitra says GST hike for man-made fibre textiles will hit MSMEs, dampen demand

Mitra, currently principal chief adviser to West Bengal CM Mamata Banerjee, said the new rate structure, to be effective from January 1, would lead to closure of around 1 lakh textile units and losses of 15 lakh jobs in India.

However, even the apparel industry representatives welcomed the GST Council’s decision despite the rate hikes on fabrics and apparels. (File image: IE)

West Bengal’s former finance minister Amit Mitra has urged Union finance minister Nirmala Sitharaman to call a GST Council meeting urgently, and roll back a proposed hike from 5% to 12% in the goods and services tax (GST) rate on most textile products in the man-made fibre value chain.

Mitra, currently principal chief adviser to West Bengal CM Mamata Banerjee, said the new rate structure, to be effective from January 1, would lead to closure of around 1 lakh textile units and losses of 15 lakh jobs in India. The GST Council’s decision to alter the rate structure — the finance ministry notified the same on November 18 — was in the interest of uniformity of tax rates in the man-made fibre (MMF) value chain and to address the issue of inverted duty structure in the synthetic textile segment. Manufacturers of MMFs have long suffered from the duty disparity with the natural fibre (read cotton) segment, and, in the GST system, these units suffered from accumulated input tax credit.

However, even the apparel industry representatives welcomed the GST Council’s decision despite the rate hikes on fabrics and apparels. They said given the high value addition in apparels, the rate increase could be offset. But a section of the industry feels that the rate hike would dampen demand given that prices to end consumers could rise as industry passes on the higher tax. Three-fourths of the domestically produced textile items are sold in the domestic market. “My question is, if a cost-benefit analysis has been done. The cost is massive closure of units, particularly small and medium units, (which will give rise to) unemployment. The units (which migrated to) the formal economy by registering for GST (may be forced to) become informal again,” Mitra said in a virtual press meet.

He said these small and medium textile units that operate with a very thin profit margins won’t have working capital to move from 5% GST to 12% GST rate. “If GST is increased, price increases will be 6-7%, demand would fall by at least 3%. Also, there will be inflationary pressure. (All this for) expected Rs 7,000 crore additional GST revenue, which, in my view, is questionable,” he said.

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