Impact of GST on Textile Industry

The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country. It contributes about 10% of the total annual export, and this value is likely to increase under GST. GST would affect the cotton value chain of the textile industry including all garments for men and women like shirts, trousers, saree, apparels, shoes and any more clothing materials which is chosen by most small medium enterprises as it currently attracts zero central excise duty (under optional route).

According to the Ministry of textiles (Government of India) total textile export during 2011-12 was US$ 33161.74 and the total value of textile machinery produced during the same period was Rs. 5280 crore.
*Official link http://texmin.nic.in/

Impact of GST on Textile Industry

It is expected that the tax rate under GST would be higher than the current tax rate for the textile industry. Natural fibers (cotton, wool) which are currently exempt from tax, would be taxed under GST. Despite this, the textile industry as a whole would benefit from the introduction of GST due to following changes:

• Break in input credit chain

A significant portion of the textile industry in India operates under the unorganized sector or composition scheme, thus creating a gap in flow of input tax credit. Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector.

• Reduction in manufacturing costs

GST is also likely to subsume the various fringe taxes like Octroi, entry tax, luxury tax etc. which would help reduce costs for manufacturers in the textile industry

• Input credit allowed on capital goods

Currently, the import cost of procuring the latest technology for manufacturing textile goods is expensive as the excise duty paid is not allowed as input tax credit. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.        

GST Rates & HSN Codes For Cotton Products like- Dhoti, Saree, Zari Border Saree, Zari Border Dhoti, Shirting, Casement, Viol, Sheeting, Suti, Cambric, Lawn, Latha, Lungi & furnishing fabrics.

GST Rates & HSN Codes For Synthetic Filament Yarn Products like- Parachute Fabrics, Tent Fabrics, Nylon Furnishing, Umbrella cloth, Polyester Shooting, Polyester Shirting, Other polyester cloth, Nylon Brasso, Nylon jacket, Nylon saree, Terylene saree, Dacron saree, Rayon Crepe, Rayon jackets, Rayon saree, Rayon shirting & Rayon brocade.

Export of textile products to get a boost

GST would streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market. The same opinion is shared by the secretary of ITF (Indian Texpreneurs Federation) Prabhu Dhamodharan.
*Official website of ITF : http://www.itf.org.in

Currently, manufacturers/traders are not inclined towards exports due to the extensive procedure costs and delays made in the processing of duty drawback. Under GST, 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. This would be a significant boost for promoting the export of textile products.

Export promotion capital goods scheme is available for all the cotton-based textile exporters. Under this scheme, exporters can claim the exemption for duty paid if they export six times the value of duty within a period of next six years. It is expected that this scheme would lose its significance under GST.

Conclusion

There may be a few drawbacks for the textile industry due to the higher tax rate and removal of benefits under cotton value chain, but it is safe to say that GST will help this industry in the long run by getting more registered taxpayers under a well-regulated system. It can also be hoped that GST will help the textile industry to get more competitive in both the global and domestic markets and create opportunities for sustainable, long-term growth.

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