India’s textiles sector is one of the oldest industries in Indian economy dating back several centuries. Even today, textiles sector is one of the largest contributors to India’s exports with approximately 15% of total exports. The textiles industry is also labour intensive and is one of the largest employers.
The textile industry has two broad segments. First, the unorganized sector consists of hand loom, handicrafts and sericulture, which are operated on a small scale and through traditional tools and methods. The second is the organized sector consisting of spinning, apparel and garments segment which apply modern machinery and techniques such as economies of scale.
The Indian textile industry provides employment to a large number of skilled and unskilled workers in the country. It contribution to the total annual export 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, sari, apparels, shoes and any more clothing materials which is chosen by most small medium enterprises.
Speculations Prior to GST – There were many speculations on the new tax regime Goods and services impacting the textile industry.
● In its meeting held on 5th August by GST council took some positive and relaxing decision for the textile industry. The council mentioned rules regarding e-way bill and rates.
● The rates of GST were been reduced from 18 percent to 5 percent on job work of all textiles and related products manufactured.
● The finance minister Arun Jaitley who also heads the GST council along with the representatives of states in general, also finalized the e-way bill rules and regulations.
● In this new decided norm, the registration of goods worth more than INR 50,000 have been made mandatory before the transport is carried on and even that for more than 10 kilometer distance.
● The complex data of GST rates and categorization in the textile industry was also speculated to be eased up with the upcoming of the new tax scheme.
Impact after GST -It was expected that the tax rate under GST would be higher than the previous tax rate for the textile industry. Natural fibers (cotton, wool) which were exempt from tax, would be taxed under GST. Despite this, the textile industry as a whole is benefited 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.
● Reduction in manufacturing costs -GST also subsumes the various fringe taxes like Octroi, entry tax, luxury tax etc. Which is helping reduce costs for manufacturers in the textile industry.
● Input credit allowed on capital goods -The import cost of procuring the latest technology for manufacturing textile goods was expensive as the excise duty paid was not allowed as input tax credit. Whereas under GST, there is input tax credit available for the tax paid on capital goods.
Moderate rate was announced for the cotton sector too. Cotton and several natural fibers will be taxed at the rate of 5%. However, man-made or synthetic fibers will be taxed at 18%.The recent breakdown on what product falls into what category of GST is as follows:
GST Rates for Textile Products:
Tax Free Textile Goods
a) Raw silk and silk waste
b) Wool, not carded or combed
c) Gandhi Topi, National Flag
d) Khadi Yarn
e) Coconut or Coir fibre
f) Jute fibres raw or processed but not spun
5% GST (Fibers and Yarns)
a) Silk yarn
b) Yarn of wool or of animal hair
c) Cotton yarn, other than khadi yarn
d) Cotton sewing thread
e) Vegetable fibres and yarns such as Flax, Hemp, Paper yarn
f) Embroidery or Zari articles
5% GST with no refund of ITC accumulation
a) Woven fabrics of Silk or Silk waste
b) Fabrics Wool or of animal hair
c) Cotton fabrics
d) Fabrics of other vegetable textile fibres
e) Fabrics of man made textile filaments
f) Fabrics of man made staple fibres
g) Knitted or Crocheted fabrics
Mix Bag (5% GST if Sale value below Rs. 1000, 12% GST sale value above Rs. 1000)
a) Articles of apparel and clothing accessories, knitted or crocheted
b) Articles of apparel and clothing accessories, not knitted or crocheted
c) Blankets and traveling rugs
d) Curtains (including drapes) and interior blinds; curtain or bed valances
e) Other furnishing articles, such as Bedspreads Counterpanes, Napkins, Pillow case, Table cloth
f) Worn clothing and other worn articles
g) Used or new rags, scrap twine, cordage, rope and cables and worn out articles of twine, cordage, rope or cables, of textile materials.
a. Wadding and felt of Textile materials whether or not impregnated, coated, covered or laminated
c. Rubber threads and covered yarns
d. Metal yarns, imitation Zari yarns
e. All Carpets and Floor Coverings including mats
f. Woven Pile fabrics and Terry Towels
g. Narrow Woven fabrics
h. Woven fabric of metal thread and metal yarn is taxable
i. Quilted textile products
j. Tyre Cord fabric of high tenacity yarn
k. Textile products and articles for technical uses (technical textiles)
18% GST (Fibres and Yarns)
a) Synthetic filament yarn such as Nylon, Polyester, Acrylic etc
b) Artificial filament yarn like Viscose rayon, Cuprammonium Rayon etc
c) Sewing thread of man made filaments
d) Synthetic or artificial staple fibres
e) Synthetic or artificial filament tow
f) Yarn of man made staple fibres
g) Sewing thread of man made staple fibres
h) All Textile Machinery
Repurcussions of GST:
•Unhappy with either the GST rates proposed or the requirement of rigorous record-keeping, traders in a few sectors in specific states protested the rollout of the Goods and Services Tax (GST) from 1 July.
•The protest was held in support of an indefinite bandh called by the GST Sangharsh Samiti against Goods and Services Tax on textiles.Police had to lathicharge the protesting textile traders. Several protesters received injuries even while the police claimed that they were forced to act after the stonepelting by the protesters.There are 175 retail and wholesale textile and apparel markets in Surat with more than 60,000 traders generating Rs. 300 crore turnover per day.”We will not accept GST on fabrics. It will ruin our trade and that the small traders will have to shut their shops,” said Sanjay Jagnani, a textile trader and office bearer of Surat Textile Traders Association.
•On the eve of July 1, the first day of the GST (Goods and Services Tax) regime , traders stopped a train in Uttar Pradesh’s Kanpur to protest the implementation of the tax overhaul, the biggest since Independence.
•Meanwhile, all major markets in Madhya Pradesh’s capital Bhopal closed today in protest of the new regime, after traders called for a bandh.
•Traders in Agra, too, decided to down their shutters today, and burnt ‘GST effigies,’ a report said . They recited verses from the Ramayan for the “purification of the mind and soul of Finance Minister Arun Jaitley.”
•Ghaziabad traders planned to shut shop as well, to press for amendments in certain GST provisions, PTI reported.
•In Delhi, Chandni Chowk’s famous textile and apparel market was shut for a three consecutive days, when nearly 5,000 traders from the area protested against GST.
•While 5% GST has been imposed on Khadi cloth currently, 12% GST has been imposed on the sale and purchase of readymade Khadi products priced above Rs1,000. Khadi yarn, Gandhi topi and India’s national flag, however, have been kept out of the purview of GST.The tax on Khadi, which had been free from any kind of taxation since 1947, has hurt Khadi traders across the country. Khadi associations made several representations to the government, requesting it to waive off the tax, citing the financial stress of weavers and spinners.
Calling the goods and services tax (GST) a “great step towards transparency,” Union minister Smriti Irani urged the business community to become a part of this historic tax reform.
“Traders and manufacturers have some apprehension. The government has said time and again that those who want to come into formal economy need not fear. If any (tax) official harasses you, let us know, we will ensure you are not harassed,” she said. Irani was addressing businesspersons at a function on GST in Ahmedabad.
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.