(GIST OF YOJANA) Impact of GST on Textile Sector [FEB-2018]


(GIST OF YOJANA) Impact of GST on Textile Sector

[FEB-2018]


Impact of GST on Textile Sector

Textile sector contributes 13.5 per cent to manufacturing and 2.1 per cent to GDP in India. Textile exports accounted for 14 per cent of total exports in 206-17. It is the largest employer after agriculture (105 million estimated employment) (2011 Census). Significantly, women constitute 70 percent of the workforce in the garmentmanufacturing sector.

The Textile industry was perpetually demanding for uniform, lower tax structure. Meanwhile, the Goods and Services Tax (GST) was introduced w.e.f. 1st of July, 2017 pursuant to 122nd amendment of the Constitution. It is a single tax system on the supply of goods and services right from the manufacturer to the consumer. All the indirect taxes of Central and State Governments have been subsumed under the GST. Credits of input taxes (ITC) paid at each stage will be available in the subsequent stage of value addition - tax only on value addition at each stage. GST Council headed by Union Finance Minister comprising of State Finance Ministers of States/UTs as Members, finalise/recommend rates of tax on supply of goods and services.

GST rate for Textiles

GST has been imposed on all textile items except silk and jute. The GST rate initially was fixed on (i) Cotton and other natural fibers (5 per cent); (ii) Natural Yarn (5 per cent); (iii) 8 per cent on man-made yarn; 5 per cent on all fabric including knitted or crocheted and woven; 5 per cent on apparel and made-ups below value of Rs. 1,000 and 12 per cent on its value above Rs. 1,000. 5 per cent GST for job works (reduced from 18 percent); and 12 per cent for carpets and other textile floor coverings, etc.

Impact of GST on Textiles

Whether there was any impact of GST on textile sector may be assessed, based on data of prices, production, export-import of textiles, employment, etc. The Textile Industry Associations claimed that GST on the textile sector particularly the inverted tax i.e.18 per cent GST on MMF yarn and 5 per cent GST on fabric, 5 per cent/18 per cent GST on job works, reduction of import duty (from 29 per cent to 15 per cent) led to escalation/uncompetitive prices, low production, export, closure of industries, unemployment, etc.

Impact of GST on Prices of Textile Items

Price of major textile items like cotton hosiery, viscose, polyester, etc has increased by 15 per cent from June to July, 2017 and it has declined during September, 2017 i.e. 8 per cent below the price of June, 2017. Whereas, price of MMF items have increased between 5 to 15 per cent during the said period.

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Sector Specific Impact of GST

Silk: Production of raw silk as well as employment generation in silk sector have increased more than 70 per cent during the period between June to August, 2017. The price of cocoon has been decreasing during June-September, 2017 expect the price of filature raw silk, which has increased during August-September, 2017, as shown in the Table 6.

Cotton and Jute: The price of raw cotton declined by 4 per cent between June, 2017 and September, 2017 due to fluctuations in the domestic and international markets and there was no impact of GST on the prices of raw cotton. GST has no impact on the prices of raw jute. There was a dip in the supply of cotton and silk yarn during the month of July, 2017 due to the fact that many user agencies (of handloom) did not register themselves under GST. All of them are reported to have registered under GST and in August/September, 2017.

Revision of GST Rates:

Implications

The Government, in consideration of their request, reduced the GST rate on some textile segment/items and on all job works of textiles
from 18 per cent to 5 per cent, and that of MMF yarn from 18 percent to 12 percent and the GST on real Zari from 12 per cent to 5 per cent by covering it under HS Code Heading 5605 Further, exemption has been given to those service providers whose annual aggregate turnover is less than Rs. 20 lakh (Rs. 10 lakh in special category States except Jammu and Kashmir) from registering under GST, even if they are making inter-state taxable supplies of services. Those whose annual turnover is upto Rs.1.50 crore, can now file returns on quarterly basis and avail input credit tax (ITC) on a monthly basis.

Conclusion

As far as impact of GST on textile production is concerned, price of textile items like Viscose, polyester, etc increased slightly during the month of July, 2017 and then, declined during August, 2017; however, the price of MMF textiles increased during the said period; textile
production also declined marginally during the said period; textile exports declined by 10.7 percent in June-July, 2017 and then increased by 6 per cent in August, 2017. Import of textiles and clothing surged to 38.61 by August, 2017 which may be due to lower import duty besides market forces. This signifies that import duty needs to be enhanced in such a manner that cost of imported textile items is equivalent to cost of those textile items being produced in India. Sector specific data shows increase of silk production and employment during the period under report. This reveals that although there was dip in the textile sector during GST implementation period, it is expected that GST will accelerate textile sector growth in the long run particularly in terms of higher production, export and employment generation.

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