What is in store for industry at the next meeting of the GST General Council stated for next month. Expectations remain high, with industry leaders hoping for a rationalisation of the rates on an item-wise analysis. This was indicated at the council’s recently concluded meet in New Delhi. For the Labour intensive textile and apparel sector the latest indication available is that for some man made fibre items the existing rates may be pared down. At present the rates are high – PTA and fibre carry a18 percent rate. These should be reduced to either 5 percent or 8 percent across the board say industry sources. In the case of textile items the rates remain at 5 percent except for cotton on which an 11 percent import duly is in force. However imports of extra-long staple cotton have been exempted from this duty.
Industry sources also want the GST on all raw materials to be reduced to 5 percent. No mass consumption items should carry a rate higher than 5 percent. Again 5 critical inputs for the industry including high speed diesel, petro materials, gas and fuel are outside the GST ambit. At the recent council meeting the Union Finance Minister in reply to a question on the subject had said “the law has a provision for their inclusion but it was for the states to first decide on it and then for the rate of tax. Capital goods, that is machinery does not get refined of GST and the government has said ‘No’ to this. The five items has five rates namely nil, 5 percent, 12 percent, 18 percent and 28 percent GST has not been extended to alcoholic liquor for human consumption.
Then the council is set to address problems arising from what is called inverted duty on raw materials and intermediates on which the GST rates are higher than the final value added products. This acts as a disincentive to value addition domestically and hurts the industry’s general competitiveness. The textile and apparel sector has seen a rapid growth in imports from countries with which India has signed FTA. For instance, imports of apparel products from Bangladesh have surged in the past few years.
It is to be noted that the global textile and apparel exports had grown at a compound annual growth rate of 3.4 percent in the last 5 years. India’s exports grew at 0.8 percent only due to geo-political uncertainties; consumption shift to other discretionary and essential spends.
Against this background, the government has notified a slew of steps towards facilitation measures, alleviating the burden on exporters operating under several schemes by enabling provisions to exempt inputs from Quality Control Orders (QCO). This will lay the foundation to achieve the $100 bn target of exports of textiles and apparel by 2030. The same exemption may be given for polyester fibre and yarn, suggests Confederation of Indian Textile Industry (CITI) in a communication to the ministry of chemicals and petrochemicals. The Schemes include advance authorisation EOUs and SEZS. The government also acted upon a request from the industry by imposing a minimum import price of dollar 3.5 a kg on knitted fabric categories which are sold at lower prices than those prevailing in the domestic market. This measure will be in forceup to September 15 this year.
The 2023-24 budgets saw the extension by two years of Remission of State and Central Taxes and Levies and Remission of Duties and Taxes on Exported Products Scheme up to September 2024 and inclusion of Advance Authorisation holders and SEZS and EOUS for the same. As said earlier, the removal of import duty on extra-long staple cotton will catalyze the industry’s export growth of textiles and apparel. The launch of RODTEP scheme for all other products which are getting exported and not covered under RGSCTL scheme is a welcome move and would cover the entire textile value chain, a long pending demand of the Industry. The RGSCTL scheme with the existing value covers garments and made ups. The government abolished the anti dumping duty on PTA and acrylic fibre basic materials for yarn a knitwear sector.
Industry sources welcome the newly- introduced production linked Incentive (PLI) scheme. The scheme incentives investments in product categories which are huge markets globally, but India has limited presence. For instance, synthetic textile and apparel and technical textiles are huge categories traded globally. However, India has a very low share in these categories due to lack of manufacturing in India. India needs to diversity its product categories and increases its share in synthetic textiles and technical textiles.
Under the scheme, incentives will be provided for investments in the top 10 globally traded synthetic garments categories and the top 10 technical textile categories traded globally. New Investments will be eligible for incentives in the identified products on achieving the target turnover. Incentives will be available every year on achieving 25 percent increases in turnover year-on year for 5 years. Existing units are also eligible for the incentives with a turnover of Rs.100 cr on achieving 50 percent incremental sales in the identified products.
The GST regime enters the 8th year of its launch in 2017. GST is considered to be one of the biggest indirect tax reforms till date. The scheme is likely to address most of the loopholes under the existing indirect regime. The new GST will replace the current central and state levies with an integrated tax. However the provisions under customs lows and FTA would continue. Therefore, incentives, exemptions available under customs and FTA benefits would be available in GST scenario as well.
The impact on the textile sector under new GST is expected to be inflationary in the short run, but will have a positive impact both for industry and customers at large in the long run. The GST will be a destination–based tax whereby tax shall be levied based on the consumption principle based on supply of goods or services or both and the central impose central GST or SGST on each intra-state transaction. Interstate supplies will be livable to integrated GST or SGST to be levied and collected by the central government, both transferred to the destination state. Imports are also traded as interstate supply for purposes of levy. Exports and supplies to SEZS are zero–rated. The tax system is synchronized in a way that the tax levied shall be apportioned between central and state governments. Each state imposes a state GST or SGST union territory GST or UTGST.
