How GST will Impact the Textile Industry including Salwar Suits in India
Goods and Services Tax has been a revolutionary step taken by the Central Government in India. Almost 17 indirect taxes have been clubbed or merged into 1 single tax known as GST. We are calling it revolutionary as this is one of the biggest change that has taken place in our Tax structure since Independence. The BJP government at the Center has shown courage to implement it from July 1 2017.
GST is a one uniform or a single tax on the supply of services and goods which will start from the manufacturer to the end consumer. Input Tax Credit will be paid at each stage in the succeeding stage of value addition, which makes GST essentially a tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with set-off benefits at all the initial stages.
GST is set to replace various taxes as mentioned below:
|Taxes currently levied and collected by the Centre:||State taxes that would be subsumed under the GST|
|a. Central Excise dutyb. Duties of Excise (Medicinal and Toilet Preparations)
c. Additional Duties of Excise (Goods of Special Importance)
d. Additional Duties of Excise (Textiles and Textile Products)
e. Additional Duties of Customs (commonly known as CVD)
f. Special Additional Duty of Customs (SAD)
g. Service Tax
h. Central Surcharges and Cesses so far as they relate to supply of goods and services
|a. State VATb. Central Sales Tax
c. Luxury Tax
d. Entry Tax (all forms)
e. Entertainment and Amusement Tax (except when
levied by the local bodies)
f. Taxes on advertisements
g. Purchase Tax
h. Taxes on lotteries, betting and gambling
i. State Surcharges and Cesses so far as they relate to
supply of goods and services
Now let’s discuss its impact on the Textile Industry:
So far the textile manufacturer of The Salwar Suits , Salwar Kameez, Sarees , Cotton Suits , Lawn Suits , Pakistani Style Suits where enjoying 0 to 5 % VAT in the textile Industry. There was 0% Tax on the Salwar Suits in India (unstitched dress material) as unsttiched fabric was considered as an essential commodity for common man. But now- Post GST most of the unsttiched material will be taxed at 5% and ready made garments will be taxed at 5% (less than 1000 INR) and 12% (above 1000 INR) respectively depending on its price. Now- this can be considered as a blow to the textile sector which is at the moment unorganized to most of the extent .
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 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.SHOP EXCLUSIVE SALWAR SUITS
Source : https://cleartax.in