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Cover Story | July 2017

GST Plus Outweighs Minus!

The long-awaited GST rates have sparked off many a smile and a few wails in the textile industry! While the majority of textile industry, particularly the garment industry, has gone gung ho over the new rates of GST, synthetic textile segment has been crying hoarse, legitimately over the 18 per cent rate.

Hailing the decision to have two slabs of GST on garments, Rahul Mehta, President of Clothing Manufacturers Association of India (CMAI), says “with input tax credits and local levies being merged with GST, essential garments of selling price up to Rs 1,000 will save on the total applicable taxes, making the essential garments even more affordable. There maybe a small increase in tax incidence on garments of selling price above Rs 1,000, after accounting for all the input tax credits. Indications are that manufacturers would absorb the same and there would be no change in customer selling prices.”

“CMAI believes that the GST rates announced are reasonable and fair, as we get ready to transition the industry into participating in the tax regime. CMAI once again expresses its gratitude to the Government for handling a complex Industry with balance and sensitivity,“ said Mehta.

Dismayed by the disparity in rates, Narain Aggarwal, Chairman of Synthetic Rayon and Textile Export Promotion Council (SRTEPC), says “the high GST rates of 18 per cent announced for man-made fibres (MMF) and yarns, dyeing and printing units and embroidery items at 12 per cent can lead to an increase in input costs and can adversely affect the entire textile value chain.”

According to GV Aras, Director – Textile Engineering Group, A.T.E. Enterprises Pvt Ltd, “one of the major fallout of the GST is that the imported fabric will attract only 15 per cent tax against the existing import duty of 26.5 per cent, making the fabric imports cheaper by 11.5 per cent. This will result in flooding of the market by imported fabrics mainly from China but also from other countries like Bangladesh and Vietnam etc. This will cause severe damage to the already suffering local Indian fabric makers especially from Surat, Ichalkaranji,Bhiwandi, Malegaon and Tirupur, etc.”

“On the export front, GST would be beneficial since it will streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market. Presently the manufacturers/traders are not inclined towards exports due to the extensive procedural costs and delays made in the processing of duty drawbacks. Under the new GST regime the system of duty drawback will lose its significance. Input tax credit will be provided as a refund under GST instead of current duty drawback schemes,” adds Aras.

Aras says, “The inter-state movement of goods under GST is expected to be far more smoother and efficient thus bringing down the logistics cost for companies.”

M Senthilkumar, Chairman, The Southern India Mills’ Association (SIMA), has highly appreciated and thanked the concerted and constant efforts made by Union Textile Minister, Smriti Zubin Irani for fully understanding the needs of the industry and persuading the Finance Minister and Prime Minister to classify the entire cotton textile value chain under 5 per cent GST rate. He has also thanked the Union Finance Minister and the officials of the Ministry of Finance for favourably considering the request of the cotton textile industry. He has also thanked the Chief Ministers of all the State Governments, especially the southern states for strongly recommending for 5 per cent GST rate and ultimately achieving the same.

M Senthilkumar has stated that as the textile industry has been under the optional route since 2004 and the fabrics have been under zero VAT rate, the 5 per cent GST rate would bring substantial revenue apart from widely broad basing the tax net across the textile value chain and ensuring compliance. He has also stated that 5 per cent GST rate on readymade garments below Rs 1,000 would greatly benefit the common man across the country, being the mass consumption item.

SIMA chief has stated that 5 per cent GST rate on cotton fibre would sustain the competitiveness of over 20 million cotton farmers as this rate across the value chain would enable the cotton textile industry to remain globally competitive, achieve substantial growth rate and increase cotton fibre consumption and thereby increase the earnings of the farmers.

“It is a bold reform that is expected to eventually simplify businesses & manufacturers like us do stand to gain from the same,” says Nikunj Bagdia, Managing Director, Ken Enterprises Pvt Ltd, Ichalkaranji. However he adds: “That said, the basic principle of fibre neutrality should have been adhered to which would have been in keeping with the true spirit of GST. It is unfortunate that the government has still maintained differential rates for cotton and manmade/synthetics, which will eventually lead to a lot of complications, probable mis-declarations and uneven playing field between the decentralised and integrated players. The very tenet of GST is lost as the overflow ITC refund is not allowed at the fabric stage. Also the opportunity to make India globally competitive in synthetics is lost for the moment. Compliances regarding the online e-way bill generating seem a little cumbersome at the moment considering the very fragmented, unorganised as well as cottage industry nature of the last mile distribution of textiles. However, it is too early to comment on the same as the complete details and procedures are not clear.”

“Overall, the introduction of GST will have a positive impact on the Indian economy,” says Ravichandran Purushothaman, President, Danfoss Industries Pvt Ltd. He adds, The GST regime will cause a tectonic shift in India’s taxation history. I foresee transparency in the business chain, which will enable significant value creation for the Indian economy and this works well for us at Danfoss as well. While this might require a shift in mind-sets of companies--from the way they do business, to the fact that all channels will have to be digitalised at every stage--the goal is perfection in execution to achieve transformation.”

“While the ‘Make in India’ initiative was started with the intention of making India as one of the top 10 manufacturing hubs in the world, there have been several hurdles that companies face in terms of cascading taxes. However, with the introduction of GST, we believe that it will help streamline the sector, creating a cooperative synergy in the country. Some positive ways in which we see the impact being felt includes reduced cost of production, supply of goods with ease where we hope to see decreased state-border checks. The other side of the coin is of course, increased compliance requirements and supply-chain restructuring that might be required from the company’s side,” adds Purushothaman.

J Thulasidharan, Chairman, CITI, welcomed the announcement and revision of GST rates on job work of textile yarn and fabric manufacturing activity from 18 to 5 per cent, but raised plenty of concerns and apprehensions on GST rates applicable on various sectors of textile industry. This will reduce service tax on job work and bringing relief to the textile industry from the extra burden as majority of the work of textile manufacturing is with SMEs and is carried on through job works especially in the power loom, knitting, processing and garment manufacturing sectors. This would now help SMEs of power loom, knitting and processing sectors not to face much financial burden. Job work under textile sector after producing grey fabric or after producing yarn are taken as services and were subjected to 18 per cent GST.

“Under such situation, the manufacturer who does not have integrated composite units to complete the process of embroidery, doubling, printing and finishing as per the market requirements would have been in great loss as high taxed would have added to their cost and dented their profitability” said CITI chairman.

Chairman CITI also thanked the Government and GST Council on behalf of textile industry for increasing turnover from Rs 50 lakh to Rs 75 lakh under composition scheme for traders and manufacturers which will help MSME to grow their business and carry out their activities efficiently. But he expressed his apprehensiveness about the made-up and garment sector as the job work related to these still come under 18 per cent service tax slab. This will have a serious implication on the cost escalation of the final goods of made-up and garments and will be uncompetitive in the domestic and international market.

Arun Ganapathy, Chief Financial Officer, Spykar Lifestyles Pvt Ltd, says, “The current GST rate for ready-made garments is 5 per cent for value less than Rs 1,000 and 12 per cent if is higher than Rs 1,000. As far as the consumer is concerned, it would benefit him in the long run when the price is less than Rs 1,000. Currently, the overall tax suffered in ready-made garments is around 7 per cent. So, a rate of 5 per cent on ready-made garments below Rs 1,000 will benefit the consumer. With respect to garments above Rs 1,000, after taking necessary service tax credits that is available, there is not a very high increase at 12 per cent. There would be a temporary increase in prices in the immediate future, but in the long run, it would more or less be stable or slightly higher.”

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