The politics of Goods and Services Tax (GST) may take some more time to sort out, but its basic impact on textile industry can be analysed beforehand. ITJ sought opinions on GST’s impact on the textile industry.
Here are excerpts:
GST is a path-breaking concept - Sanjay S Lalbhai, CMD, Arvind Ltd
GST is one of the most of path-breaking of things to have happened in India.
And I am extremely buoyant. My take is that this is one industry where evasion is a big problem.
China has acquired 30-35 per cent market share of world trade, and domestically Chinese textile industry is very robust. They have had a very logical GST regime for so many years – there is no evasion, no distortions in the entire textile value chain. In India, we have a huge amount of evasion, and so many problems. Currently, there is a tax on polyester. There is zero tax on cotton. A 12 per cent merit rate will be transformational – the jobs it will create, the kind of evasion it will take away and the kind of revenue buoyancy it will generate for the government. So it is the single-most important thing to happen to textiles. I am very encouraged by this. We really are looking forward to a logical and proper roll out of GST and its applicability to the textile business.”
GST will impact logistics - Sanjiv Khandelwal, CEO and Co-Founder, XSTOK.com
After an endless wait, GST is finally taking shape and like many other industries the textile industry is set to reap the benefits. Textile industry will see two clear benefits- logistics and Capital Goods investments. The textile industry is a capital intensive industry, each production unit, apart from catering for wear and tear, needs specific updates in the long run. XSTOK.com has on-boarded over 750 mills and a quick analysis tells us that only 40 per cent of them are equipped with the latest machinery. Many larger players like Arvind Mills, D’décor (etc) have updated production facilities and hence enjoy better efficiencies and can also match export quality production demands. However, with the new GST norms, since the taxation on Capital Goods will come down from 24-25 per cent to a standard 18 per cent, it will help many suppliers/mill owners to expand and modernize by allowing them to invest in newer and better technology/machinery, revolutionizing textile manufacturing.
The second benefit and perhaps the most important one of GST is the impact it will have on the transportation and logistics industry. A uniform taxation law will significantly reduce the cost of transporting goods and raw materials and will also reduce the logistics cost by 30-40 per cent. Not to forget, since the Octroi check points will be redundant, the industry players are expecting the delivery time to reduce significantly as well.
GST could inflate garment prices
Branded apparels may get costlier due to the Goods and Services Tax (GST), expected by April 2017. The tax incidence on branded apparels and other finished textile products could rise at least three to four per cent, assuming textiles come under the merit list of GST.
Branded garments may be put under the luxury tax slab, which could be higher than 18 per cent. As a value chain, many inter-state transactions happen in textiles. Hence, GST is likely to bring in ease of doing business across the whole value chain.
The immediate incidence of three or four per cent, assuming a 12 per cent rate and an almost 10 per cent incidence in case of 18 per cent, will result in inflationary trends. However, a merit rate of 12 per cent for fabrics and 16 to 17 per cent for garments tends to be revenue neutral. In such a case, it may not have any inflationary pressure on garments.
The tax neutral rate in textiles comes to around 8-9 per cent. Once GST comes into play, the industry is expecting a lower rate of 12 per cent, out of the two slabs of 12 and 18 per cent. But even at a lower rate, the sector will end up paying higher duties, thereby increasing prices. Hence, from the textiles perspective, it will be inflationary.
GST will not benefit knitwear products
Knitwear products are not going to be benefitted by the tax slabs proposed under GST as the present rate of taxation on textile products is much lower. However, the Tirupur knitwear cluster as a whole can rejoice when the GST bill finally gets implemented since it would ease taxation procedures through synchronisation of excise duty, state Value Added Tax and service tax uniformly across the country. Said S Dhananjayan, a senior member of Institute of Chartered Accountants of India (ICAI) that rates of taxation for certain products like textiles are only going to scale up under the GST system as present accumulated tax on textile products is in the range of seven to eight percent whereas GST has a cap of 18 per cent.
Pointed out RM Senthil Kumar, a former chairman of ICAI (Tirupur chapter), the transparency in movement of goods would improve as tax payments at various stages could be monitored online under GST which, in turn, reduce the black marketing.
Meanwhile, GR Senthivel, Secretary, Tirupur Exporters & Manufacturers Association, feels tax slabs under GST should be brought down from the proposed 18 per cent.
GST to benefit unorganised sector: Suresh - J Suresh, MD & CEO-Arvind Lifestyle Brands Ltd & Arvind Retail
There are two impacts. One is in terms of the rate, whether the rate will go up or not. It is okay as long as it’s up to 18 per cent. The current recommendation is 18-20 per cent only. Since textile is not one of the heavily taxed categories, it could be in the merit rate as well. GST is likely to benefit industries which are largely unorganised.
GST to boost textile exports: ITF - Prabhu Dhamodharan, Secretary, ITF
The textile industry has welcomed the passage of GST bill by Rajya Sabha, terming it as one of the biggest and transformational reforms in the economic history of the country and said it would pave the way for growth of exports. Thanking Prime Minister and the Finance Minister for this historic reform, the Indian Texpreneurs Federation (ITF) expressed confidence about the positive impacts of GST on the overall economic growth in the next few years and said it would make the manufacturing sector more competitive.
As far as the textile goods, being essential items for the common man, these should be kept under GST with the minimum possible tax slab with the special rates, said Prabhu Dhamodharan, Secretary, ITF. It is an opportunity for the Government to bring the entire textile sector under tax net and this move which will bring more transparency in the system will trigger growth, he said.
GST to revolutionise logistics: Allcargo - Prakash Tulsiani, ED & COO, Allcargo Logistics
GST is set to revolutionise logistics with unified and simplified structure versus multiple taxes at various levels. It will lower the inventories and working capital; reduce documentation, improve asset utilisation, ensure higher turnaround time and efficiencies. We expect the industry to move away from pure vanilla warehousing needs to contract logistics. Allcargo will benefit as we have a pan-India presence with a strong management team and the strength to bring in efficiencies and take costs out of the system. We have also taken steps towards investments in logistics parks in NCR and have already taken steps to further explore the potential of contract logistics business with the merger of CCI Logistics.
Different shades of GST - By CRISIL
After a decade-long struggle, the GST, which has already been adopted by 160+ countries in some form or the other, sailed over the first of three hurdles when the Rajya Sabha unanimously adopted the Constitution Amendment Bill to facilitate its legislation.
Coming up next is the GST Council, comprising the Finance Minister and nominated State Finance Ministers, which is expected to be formed in 2 months to deliberate on the specific features of the tax including the final rate structure, exemptions, threshold limits and date of implementation on petroleum products.
Further, the Constitution Amendment Bill also needs to be passed by at least 15 state legislatures (50 per cent of the states) before becoming an Act. Then the Centre and the states will have to pass their GST laws and turn India into a unified market.
So which segments stand to gain and which won’t with the implementation of GST?
CRISIL Research took a look at what this means:
Heralding transparency, reducing the cascading effect of taxes GST is expected to bring uniformity in taxation and reduce its cascading effect leading to cheaper goods and services. Currently, excise and value-added tax (VAT) cannot be offset, so they cascade. In addition, VAT credits cannot be carried across states. Both these characteristics would change under the GST regime.
A dual-structure is on cards where the Centre would levy and collect the Central Goods and Services Tax (CGST), and states would levy and collect the State Goods and Services Tax (SGST) on all transactions within a state. The states will be able to fix their SGST rates above the floor rate, but within a narrow band. Input tax credit of CGST would be available for discharging the CGST liability on the output at each stage. Ditto SGST.
No cross-utilisation of credit (across CGST and SGST) would be permitted. The Centre would levy Integrated Goods and Services Tax (IGST) on inter-state supply of goods and services, which might be a combination of CGST and SGST. As for IGST, inter-state sellers can avail of input tax credit. The proposal for additional tax of up to 1 per cent on the supply of goods to be levied on inter-state trade for 2 years is on its way out, which will reduce its cascading effect and maximise the benefits from GST.
As per the Constitution Amendment Bill, all goods and services will be brought under the GST purview.
While petroleum/petroleum products have been included in the framework, GST would be levied only upon Council’s recommendations, implying that present taxes (excise duty, sales tax, CST) would continue to be levied on these products. For tobacco and tobacco products, taxes imposed by the Centre would be levied over and above the GST.Current exemptions on certain goods to continue
Multiple exemptions exist under the present tax system – the Centre has ~300 items exempted from central excise duty, while the States (together) have ~90 items exempted from VAT. These will be merged into a Final synchronised exemption list under the GST regime.
While imposing the GST on essential goods that are currently exempted from either excise or VAT or both would be regressive in nature as their prices would shoot up, the more the exemptions that are retained the higher will be the standard rate. Hence, the government must limit exemptions to essential goods in an ideal GST regime.