At the Lucknow meeting held on September 17, The GST Council has decided to impose 12% GST on all textile products except cotton to correct inverted duty structure in the sector. The new rates will be effective from January 1, 2022
Currently, the man-made fiber-based textile value chain is subject to a 5-18% GST rate at various levels. The GST rate on mono-ethylene glycol (MEG) and purified terephthalic acid (PTA) is 18 %, 12 %on polyester partially-oriented yarn (POY), and 5% on grey fabric, finished fabric, and garments. This has resulted in a tax structure in which the rate on inputs is higher than the rate on outputs, resulting in an inverted duty structure.
According to experts, correction of inverted duty will result in seamless input tax credits, making the impact on the entire value chain minimal.
The proposed change in tax structure would have the greatest impact on the man-made fiber-based textile value chain, which is primarily developed in Surat and South Gujarat, according to Ashish Gujarati, president of the South Gujarat Chamber of Commerce and Industry (SGCCI). The new slab would directly affect the prices of yarns as well as the weaving process Besides, prices of other petroleum-based raw materials Overall cascading impact would finally be on the end users, Gujarati said
An SGCCI delegation recently met Gujarat’s GST Chief Commissioner, who is also a member of the GST Council’s fitment committee. According to the SGCCI, the government’s GST revenue will not increase much as a result of the proposed uniform tax rates, but end-users will pay more.
People working in the synthetic textile value chain, according to Bharat Gandhi, president of the Federation of Indian Art Silk Weaving Industry (FIASWI), had a hard time understanding the GST structure that went into effect from July 2017. The government is now proposing more changes to the tax structure, which will increase production costs, Gandhi said.
Apart from silk fabric manufacturers, a uniform tax rate would have a negative impact on hundreds of embroidery businesses. Due to inflated rates of petroleum products, coal, and packaging materials, embroidery units have already been forced to raise job-work rates by 10%, according to Hitesh Bhikhadia, president of the Embroidery Job-Work Association in Surat.
Surat has a 45 %share of India’s synthetic textile production, with nearly 30 million metres of raw fabric and 25 million metres of processed fabric. More than two million people are employed directly and indirectly through the synthetic textile value chain, which includes spinning, weaving, processing, and garmenting. Other half-million people are employed in the city’s textile markets, which number nearly 300.