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GST gives textiles a leg up
November, 26th 2018

A year after implementation of the Goods and Services Tax (GST), the system is getting streamlined for the intended purpose of achieving the objective of ‘One nation one tax’. In the excise regime, multiple tax systems had increased administrative costs for manufacturers and distributors. With GST in place, the compliance burden has eased.

GST brought in developments and changed the way businesses conducted themselves.

It is commendable on the part of the GST Council to arrive at decisions on a consistent basis, despite differences of opinion among various sectors and political parties.

The textile sector is one of the oldest and largest in the country and a major contributor to the development of the economy. The industry employs both skilled and unskilled manpower and contributes over 10% of the total annual exports of the country, which is likely to increase under the GST regime.

Tax burden declines
Many from the textile industry have stated that the overall tax burden has come down for the sector to 18% from 20% and that the new system has also increased transparency in the sector, which provides employment to 45 million people.

A majority of the Indian industry functions in the unorganised sector or the composition scheme, creating a gap in the flow of input tax credit (ITC). If a registered taxpayer procures the input from taxpayers under the composition scheme or the unorganised sector, ITC will not be allowed for him.

With the implementation of GST, the input credit system has smoothly shifted the balance towards the organised sector. By subsuming different taxes such as entry tax, luxury tax and octroi, the costs for manufacturers will be reduced in the textile industry.

For textile mills, the import cost of the latest technology to manufacture textile goods is expensive because the excise duty paid for the same was not allowed in ITC. Under GST, ITC is available for all the tax paid on capital goods.

The process of claiming ITC is simplified in GST, which allows the textile sector to be competitive in the export market.

Expectations are high on three counts. First, yarn now attracts 5% GST and the machinery to manufacture yarn attracts 18%. This is uneven. Yarn manufacturers will be left with a huge input credit which they won’t be able to utilise.

There is no provision under GST to get such accumulated credit as refund for capital goods. This will contribute to dead investment for the textile industry over several years.

Second, a foreign manufacturing company is now permitted to set up a unit without any investment from the domestic market, bring in 100% of their share, and repatriate profit to their countries. This has made the domestic textile machinery manufacturing companies to compete in an unfavourable environment. To safeguard the domestic industry’s interest, government should create a level-playing field which will pave the way for ‘Make in India’ to prosper.

It also keeps domestic industries healthy and facilitates a healthy employment environment. Also, more incentives must be given to the textile sector to help explore the export market at competitive prices.

Finally, a simplified procedure is needed in the e-way bill legislation to ease transportation of goods by minimising documentation, physical verification and the like.

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