Uniform 12% GST on MMF textiles doesn’t address cost challenge for entire MMF sector, say experts

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November 23, 2021 9:00 AM

Ease of Doing Business for MSMEs: The Ministry of Textiles said that the new tax rate, which would come into effect from January 1, 2022, “will help the MMF segment grow and emerge as a big job provider in the country."

The government had announced the PLI scheme for MMF apparel and fabrics along with 10 other segments or products of technical textiles in September this year. (Image: Pexels.com)

Ease of Doing Business for MSMEs: Even as the government on Monday notified replacing the inverted tax structure on man-made fibre (MMF) textiles to a uniform rate of 12 per cent across MMF, MMF yarn, MMF fabrics and apparel, experts in the MSME-dominated MMF textiles segment said this would address only part of the cost challenges faced by businesses. The Ministry of Textiles in a statement said that the new tax rate, which would come into effect from January 1, 2022, “will help the MMF segment grow and emerge as a big job provider in the country.”

The government argued that the uniform rate of 12 per cent will save working capital, reduce the compliance burden of the industry players, help resolve the input tax credit (ITC) residues that were accumulated due to the inverted tax structure earlier, absorb and recovery unutilised ITC for job work related to dying and printing services, and since a ‘significant portion’ of MMF products is expected to be exported, it will also lend a better scope for encashing the untilised ITC. Currently, the GST on MMF, MMF yarn, and MMF fabrics was 18 per cent, 12 per cent, and 5 per cent respectively.

However, the inverted duty structure would still continue as the raw material – purified terephthalic acid (PTA) and mono ethylene glycol (MEG) — required for MMF fibre and filament manufacturers was still capable of 18 per cent GST even as GST on MMF fibre and filaments would be 12 per cent from January, according to a draft of the presentation prepared by the Polyester Textile and Apparel (PTA) Association and shared with Financial Express Online. The presentation is likely to be shared with the government this week.

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“This notification has only covered half the portion of MMF industry and left out its backward manufacturing structure which is the basic thing for the government to do first. The government should reduce GST on PTA and MEG also from 18 per cent to 12 per cent so that the whole MMF value chain is covered. This inverted duty structure wherein now polyester staple fibre will also be at 12 per cent but PTA and MEG will remain at 18 per cent will hurt cost for businesses,” RK Vij, General Secretary, PTA Association told Financial Express Online.

The government had announced the Production Linked Incentive (PLI) scheme for MMF apparel and fabrics along with 10 other segments or products of technical textiles in September this year with a budgetary outlay of Rs 10,683 crore. Under the five-year scheme, investments worth over Rs 19,000 crore, cumulative turnover of over Rs 3 lakh crore, and additional employment opportunities of more than 7.5 lakh jobs were envisaged by the government. However, for the sector to enhance job opportunities and investments, experts also sought GST rates in MMF at par with cotton.

Coimbatore-based Sabari Textiles Executive Director S Sivakumar maintained that uniformity in GST rates should be brought down to 5 per cent. “If you see the cotton value chain including cotton, cotton yarn, and cotton fabric, the rate was 5 per cent.  Also, readymade garments less than Rs 1,000 were at 5 per cent. On the other hand, in MMF it would be 12 per cent while we had asked for a uniform 5 per cent. We will further work towards bringing it to 5 per cent. There are only a few countries where different duties are imposed on different fabrics,” Sivakumar, who is also the Joint General Secretary at The Textile Association (India) told Financial Express Online.

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The Indian textiles sector has approximately 4.5 crore workers including 35.22 lakh handloom workers contributing 7 per cent to the industry output (by value) in FY19, as per the India Brand Equity Foundation. Moreover, between January and July 2021, India exported textile products worth Rs 1.77 lakh crore — 52.6 per cent more from the year-ago period and 13.7 per cent more than the pre-pandemic level of 2019. Nonetheless, a change in GST rates might also lead to a jump in the cost of finished products.

“While the change is on expected lines as the issue of inverted duty structure was discussed during the last GST council meeting and it was decided that the GST rates of finished goods ought to be increased, the industry is not very happy with the increase in rate. Undoubtedly, this will help in increasing cash flow and reduce the compliance burden for the assessee, however, it may increase the cost of finished goods in the hands of customers.,” said Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co.

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