GST Council defers rate hike on textiles. “Big relief” says industry

In a major relief to MSMEs in the textile and apparel sector, The GST Council on Friday has decided to defer the rate hike on textiles from 5% to 12%.

Bikram Singh, Industry Minister, Himachal Pradesh, told the media the issue would now be reviewed at the next meeting in February.

Earlier reports suggested that the council was likely to put the hike on hold.

Welcoming the tax rollback, Animesh Saxena, President, Federation of Indian Micro & Small and Medium Enterprises (FISME), said the decision is a “big relief” to both MSMEs and consumers as the majority of consumers in India buy clothes below Rs 1000. Also, most of the MSMEs who were supplying and producing goods for this segment would now get a sigh of relief over increased compliance costs, Saxena added.

Echoing similar views, A Sakthivel, Chairman of Apparel Export promotion council (AEPC) said that he welcomes the decision of the GST Council. “Deferring the rationalisation of rates and reviewing the matter in its next meeting is a good decision as this will provide further time to understand and evaluate the views of various stakeholders involved in the process, including the consumers, This would ensure that a well-thought decision may be taken in country’s interest,” said Sakthivel, also the president Federation of Indian Export Organisations.

MSME exporting firms have also lauded the CBIC’s decision. with Omicron now bringing havoc across major global markets, Indian exporters needed every possible help from the government and this decision would help them cover some lost grounds, said Anant Srivastava, Director at MSME dominated Home Textile Exporters’ Welfare Association (HEWA).

Sumit Jain, MD of Delhi based textile firm Kanin Originals stated that the development would surely aid MSME firms’ economic recovery in the year 2022 as they would not have to keep aside additional money for tax purposes now. ” This would be particularly helpful for exporters who first pay the GST and then after more than a month, they get the refunds. 12% GST meant more money was to get blocked,” Jain said.

Notably, the Finance Ministry on November 18 had notified a 7% hike in GST applicable on manmade fibre (MMF) MMF yarn, MMF fabrics and finished products such as apparel, textiles and footwear from the earlier 5% to 12%, effective January 2022. Ever since the announcement of the GST hike was made, the MSME firms, largely maintained that the move would lead to a significant hike in their cost of production. The stated goal behind FinMin’s move was to address anomalies caused by an inverted duty structure — which occurs when the tax rate on inputs is greater than the tax on the finished product. The government’s rationale was that the decision would curb the Inverted Tax Structure (ITC) anomaly plaguing the MMF textiles value chain.

For manufacturers, the government’s decision appeared to be a mixed bag. While the GST hike was hailed by manmade fibre (MMF) manufacturers, representatives of other segments had expressed their dismay over the move. Since experts say the MMF garments cannot be identified easily and cannot be taxed differently, hence there was a need for a uniform rate. The textiles & apparel industry was also having long-pending demand for the removal of ITC on the manmade fibre (MMF) value chain, the Commerce Ministry had stated. The GST on MMF, MMF Yarn and MMF Fabrics were 18%, 12% and 5% respectively. The taxation of inputs at higher rates than finished products created build-up credits and cascading costs and blockage of crucial working capital for the industry, the government had said.

The decision to defer the GST hike is a welcome move, especially in view of the impending third wave, assert tax experts. Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co. says ever since the hike was announced, the textile industry has continuously expressed its apprehensions and various representations were also filed with the government. It is good to see the government acknowledging the concerns of the industry and acting upon it, Bose said.

M.S. Mani, Partner, Deloitte India believed that while the tax rollback would benefit the sector, especially SMEs and MSMEs who operate in this employment intensive sector, it would be necessary to find out a solution in future to the problems of inverted duty structure in the textile sector.

“The decision to rollback the proposed GST rate increase case of the textile products would also make the footwear sector expect a similar treatment in future. The proposed recommendations of the rate rationalization committee expected in the next two months would be keenly watched by many sectors, including the textile sector,” Mani said.

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

Source link

Spread the word!

Leave a Comment

Your email address will not be published. Required fields are marked *

back to top