Textile Industry in GST – Comparison between current rates vs GST Rates
Textile Industry in GST – Comparison between current rates vs GST Rates. On bringing GST into practice, there would be merger of Central and State taxes into a single tax payment. Further, it would subsume all indirect taxes at the center and the state level. It is expected to enhance the position of India in both, domestic as well as international market. At the consumer level, GST would reduce the overall tax burden, which is currently estimated at 25-30%. Any major macro-economic reforms in the country are only possible with effective fiscal & monetary policies in place and economic reforms are important for empowerment of poor. Approximately 70% of the population lives in rural India, GST will become a catalyst for a common rural market in our country with the removal of state level barriers. now check more details for GST Impact on Textile Sector from below…..
Textile Industry in GST, Impact of GST on Textile Industry
About Textile Industry
- a)One of the oldest Industries
- b)One of the largest contributors to Indian Exports. Contributing about 11% of total exports of the country.
- c)Largest labour employment industry.
- d)The Textile industry can be broadly classified into two segments:
- 1.Yarn & Fibre (Natural & Man-made)
- 2.Processed Fabrics, Ready-made garments & Apparels
Current Taxability on Textiles
- a) In 2004, exemption was granted on textile articles falling under chapter 61, 62 and 63 from duty of excise by issuing Notification No. 30/2004
- b) It was again subjected to duty in 2011-12. After remaining liable for one year, it was rolled back by then finance minister P Chidambaram and since then textile was out of central excise purview.
- c) In Union Budget 2016-17, branded readymade garments has again been made liable to duty of excise.
- d) Notification No. 15/2016-CE has been issued amending the original exemption notification 30/2004 . By Virtue of this exemption is withdrawn on all goods falling under chapter 61, 62 and 63 of CETA bearing a brand name or sold under a brand name and having a retail sale price (RSP) of Rs.1000 and above. There would be two options for payment of duty: 2% without Cenvat and 12.5% with Cenvat.
- e) Most of the textile products are either exempt or are taxed at a relatively lower rate and are extensively subsidized under different central and state regimes. Exports have continued to be free from taxes.
- f)Non-branded goods continue with “Nil” levy without CCR benefit. Otherwise, option of paying 6% with CCR in case of garments / articles of cotton, not containing any other textile material is available.
- g) Job Work In garment industry many times, brand name owners outsource the goods manufactured completely or on job work basis. There are special provisions that the central excise duty levy which in normal course should be with the job worker gets shifted to brand name owner. Such brand name owner instead of job worker needs to register and comply with excise provisions. Brand name owner alternatively could authorize his job-worker to obtain registration and pay the duty on goods.
- h)Most of the states in India has exempted textiles and fabrics from levy of VAT. Garments including textiles are being subject to lower rate of VAT in many states. For example, in Karnataka state, ready made garments and other articles suffer lower rate of 5.5% tax. Textiles are exempted from VAT.
- i)For small players, the option of paying taxes at concessional rates is also provided under composition scheme in many states.
Comparison between current rates vis-à-vis GST Rates
|Name of the product||Current Rates||Proposed Rates in GST|
|Cotton and Natural Fibre||Nil||5%|
|All Categories of Yarn||Nil||5%|
|Silk and Jute||Nil||0%|
|Manmade Yarn, Synthetic Yarn, Manmade Fibre||18%|
|Branded Garments more than Rs. 1000||2% without CENVAT and 12.5% with CENVAT (Chapter 61,62,63) : 7.5 % (60% Tariff Value)||12%|
|Other Garments||Garments/ articles of Cotton and not containing other textile : Nil (W/o Cenvat) and 6% w.o. CENVAT
Others : Nil (W/o Cenvat) and 12.5% w.o. CENVAT
|5% (No overflow of credit allowed)|
Issues in Current Tax Structure
|1.||Compliance Cost for Small Scale Business||Small Scale Composition Taxpayer is hesitant to join Credit chain as it increases the compliance cost.|
|2.||No Input tax
|Most of Textile tax payer use composition scheme. Where Registered Taxpayer purchases goods from composition Taxpayers, they are not eligible for Input Tax Credit, thus breaking the Input Credit chain. Input Tax credit paid on the transaction is included in the cost of the product making the product costly.|
|3.||Branded Goods||Affixing of the brand name on goods amounts to manufacture and the person affixing brand name would be liable to pay the excise duty.|
|4||Octroi and entry tax etc||Increases Cascading effect thus increase the cost|
Impact of GST on Textile Sector
|1.||Improved compliances||The value chain under the GST will be fully traceable.
As a result, ITC claims will have to be backed by full information chain of purchases and sales. Improved compliance will automatically lead to higher revenues.
|2.||Revenue Neutral rate (RNR) proposed to be higher under GST||Currently State VAT is 4-5% on Apparels and 1.2% of effective excise duty on branded garments with MRP more than 1000 Rs, the overall tax incidence on apparels is lower than 12%, which is the lowest rate being proposed in GST.
If the Rate is expected to be come out as 12 % ,the apparels retailers will not have sufficient credits available to be set off if the GST is not levied on yarn and fabrics.
|3||Higher Revenue to Central and State Government||If the rate is expected to be 12%, it would count for high revenue to centre and state. Also non availability of credit would play a vital role in the revenue.|
|4||Fiscal barriers for inter-state movement to be removed||Reduce time of movement and logistic costs, stocking costs and carrying costs.|
|5||Promote Capital investment||textile players which are oriented towards domestic markets will be able to set-off the GST paid on domestic capital goods (but not the import duty) as their sales will be subject to GST. Accordingly, this will reduce the cost of capital investments and hence will be positive for the players operating in domestic markets.
Taxes paid on purchase and installation of capital asset and equipment can be claimed as Cenvat credit
|6||Transparent Taxation||In the current taxation, taxes are being paid on input are being added to cost as the finished product are exempt from Taxes. In GST, Textile Output will be taxed and Input Tax will be rebate whether in the case of export or for domestic use making taxation transparent.|
|7||Duty Drawback to lose relevance||With Input tax credit chain becoming more transparent and integrated, the tax credit for exporters will become easier and full credit of indirect taxes can be claimed; and the duty drawback scheme, which aims to provide credit of indirect taxes, could lose relevance under GST.|
|8||Increase in administrative cost||Most of the activities are out of tax net now and might get taxed in the GST regime.|
|9||Registration||Registration required to be obtained by small dealers when turnover exceeds the threshold limit.
Composition scheme shall be available.
Also, separate registration may be obtained for business verticals
|10||Returns||Timely payment of taxes, filing of returns needs to be ensured in the GST for ensuring seamless flow of credit.|
|11||Accounting||This department needs to be faster.|
|12||Goods Transfers as Stock||Transfer of Goods to other place will be liable for GST if the transfer is in the course of inter-state trade. If there are separate dealerships of a dealer and separate GST registration number is obtained for each such dealership, then transfer of any supply between such dealerships will also be liable for GST.|