Apparel Exporters Seek Pre-GST Drawback as Immediate Relief

BURNING ISSUE

♦Apparel Exporters Seek Pre-GST Drawback as Immediate Relief

India’s apparel exports declined 39% in value terms in October.

Industry in Chaos post GST, Forced to Shut down and Eliminate Workers




The garment export industry is reeling under severe pressure ever since the Govt rolled out new tax regime GST and soon after that declared to reduce the duty drawback rates. The after effect of the decision has started coming in and trouble which was hovering inside shop floor is now in open. In the last few months, many export houses have reported closing of few units, lowering their current capacities and holding back all expansion plans. In fact, few of the expansion plans were midway when the GST came in and then everything became slow.

The apparel export industry has been “severely handicapped’ by the sharp reductions in the effective drawback and rebate on state levies (RoSL) rates. The drawback mechanism prior to the GST reimbursed both the customs duties and domestic taxes like central excise and service tax. This, however requires an amendment in the drawback rules to provide for reimbursement of GST duties

As a result, India’s apparel exports have seen a huge drop. As per the data released by Commerce Ministry the apparel exports have fell by 40.75% in October 2017 to Rs 5,398.08 crore as compared to exports of Rs 9,110.75 crore in same month of the previous year. This includes garments of all textiles, according to the quick estimates of India’s foreign trade during the month, released by the ministry of commerce and industry. Exports of man-made textiles, including yarn, fabric, made-ups, etc during the month dropped 8.26% to Rs 2,309.57 crore, as against exports of Rs 2,517.51 crore in October 2016. However, exports of cotton textiles, including yarn, fabric, made-ups, handloom products, etc increased by 2.21 per cent to Rs 5,369.97 crore over exports of Rs 5,253.96 in the corresponding month of the previous year. Jute products, including floor covering, exports stood at Rs 150.28 crore in October 2017, registering a growth of 6.29 per cent year-onyear, while carpet exports dropped 33.03 per cent to Rs 667.29 crore.

Overall, India exported goods valued at Rs 150,325.95 crore in October 2017, as compared to Rs 155,926.73 crore in October 2016, registering a decline of 3.59 per cent. This brings to an end a Overall, India exported goods valued at Rs 150,325.95 crore in October 2017, as compared to Rs 155,926.73 crore in October 2016, registering a decline of 3.59 per cent. This brings to an end a Reacting to the export data for the month of October 2017, Ganesh Kumar Gupta, president, Federation of Indian Export Organisations (FIEO) said that the fall was expected as exporters particularly MSME were facing liquidity problem to pay GST for four months in a row without getting any refund. Gupta said that there is immediate need for remedial measures to prevent further decline in exports otherwise the situation may be worse for November 2017. Implementation of the measures approved by GST Council is not taking place as a result challenges faced by the exporters remain the same.

Chairman of Apparel Exports Promotion Council (AEPC) Ashok Rajani recently called Chief Economic Advisor Arvind Subramanian to apprise him about the difficulties faced by garment exporters. He demanded that the duty reimbursement to garment exporters be retained at pre-GST drawback rate of 7.5% as an immediate relief to them amid declining outbound shipments. India’s apparel exports declined 39% in value terms in October. Under drawback, exporters get the reimbursement of duties they have paid on the imported items used in the finished good. In the wake of dwindling apparel exports, AEPC in a statement said that it has been engaging with the policy makers for an early resolution of the issue which is hampering the apparel industry, post GST roll out.

“The apparel export industry has been “severely handicapped’ by the sharp reductions in the effective drawback and rebate on state levies (RoSL) rates. The drawback mechanism prior to the GST reimbursed both the customs duties and domestic taxes like central excise and service tax. This, however requires an amendment in the drawback rules to provide for reimbursement of GST duties,’ said Rajani. “We have urged Subramanian that pending these legislative changes, the total duty reimbursements to the apparel sector be retained at pre-GST stage of 7.5 per cent drawback without input tax credits, plus 3.5 per cent of RoSL (rebate on state levies),“ Rajani said. ’The preexisting levels of reimbursement through the drawback and the RoSL routes should be maintained upto 31 March, 2018 to provide immediate relief to the reeling apparel sector,’. he added.

AEPC is the official body of apparel exporters in India that provides invaluable assistance to Indian exporters as well as importers/ international buyers who choose India as their preferred sourcing destination for garments. Earlier this month, apparel exporters had forwarded their concern before Parl Committee (Parliamentary Standing Committee) on the impact of GST on Apparel Exports. In its presentation to Naresh Gujral, Chairman, Parl Committe AEPC informed him about the difficulties, which smaller exporters are facing after the rollout of the new GST regime. The requirement of dedicated resources for GST and compliance required has added on pressure in terms of both time and cost of exporters.

Rajani, said, “The positive impact of GST is yet to be felt by the garment industry, where input costs have not come down. Overall effect of GST on apparel exporters, especially small and medium exporters is burdensome and stressful due to substantial increase of working capital and higher transaction cost. MSME have to recruit services of qualified CA’s to be able to manage GST payments and refunds. It has not only impacted the production of apparel adversely but has also led to pressure on margins for exporters due to lowering of drawback rates.

The after effects of GST has already hit hard on the industry as the garment exports saw a sharp decline of around 40% in the last quarter which has come a huge shock for the industry and if immediately something is not done India’s competitiveness and export industry will suffer badly. Competing countries like Bangladesh and Vietnam already have cost advantages on account of preferential trade agreements with major export markets, and buyers are moving to these destinations for sourcing. This could have a cascading effect on the job scenario as exporters will be forced to shed jobs.

In its wish list presented to the Parliamentary Standing Committee, AEPC has asked for early consideration of refund of blocked/embedded taxes on purchase of Ginned Cotton (agricultural inputs such as agricultural machinery, seeds, fertilizers, power, diesel etc.), and miscellaneous Central/State levies like power cross subsidy, etc, stamp duty, property tax and others levies for refund under Rebate of State Levies (RoSL). “Full reimbursement taxes through drawback and RoSl needs to be done at the earliest, so that peak season orders can be booked at better rates.’ reimbursing increase in cost of working capital and higher transaction cost.

It has also asked for allowing utilization of MEIS scrips for use in payment of CGST, SGST and IGST to ease the challenges being faced to working capital blockage and other procedural issues. To arrest the decline in exports, AEPC has requested for competitive exchange rate and rupee appreciation be stabilized to protect the interest of exporters.

“As per the data released by Commerce Ministry the apparel exports have fell by 40.75% in October 2017 to Rs 5,398.08 crore as compared to exports of Rs 9,110.75 crore in same month of the previous year.”

Many exporters in Delhi, Noida, Tirupur, Bangalore, have confirmed that this is affecting the employment in industry as they are forced to eliminate workers. The fabricators, jobworkers, dyeing and processing houses which were once on an expansion spree are now in compression phase. “We are getting reports from nearby units almost everyday about workers at both small and medium level being asked to leave the jobs, this is going to have huge impact as unemployment will increase manifolds and not only the apparel industry but economy as whole will get disrupted. The Government should immediately take some steps to control the situation,’ said Lalit thukral, President, Noida Apparel Export Cluster.

“We are getting reports from nearby units almost everyday about workers at both small and medium level being asked to leave the jobs, this is going to have huge impact as unemployment will increase manifolds and not only the apparel industry but economy as whole will get disrupted. The Government should immediately take some steps to control the situation,” said Lalit thukral, President, Noida Apparel Export Cluster.

Speaking to Team Perfect Sourcing Narendra Goenka, MD, Texport Industries Pvt Limited, Mumbai, said,“It is a very tough time and the effect is not at all small. We do not know how to tackle the situation. At the moment all new projects have been stopped midway and we do not know by when the situation will improve. We definitely have expectations from the Government regarding duty drawback rates and we can expect some good news on the same. They have to take some action soon as the industry is second largest employer after agriculture. It is really impossible to work on 8% loss and as a result we are not able to accept new orders also.

One of the exporters from Jaipur specifically called Team Perfect Sourcing to share his concerns about the industry and how the industry is under deep crisis post GST. “The situation is alarming, after the implementation of GST. We were facing problems before also but post GST the troubles have doubled. The capital investment has increased, profitability is reduced and rotation of money has also stopped. In my opinion garment industry should be exempted fully from GST and the ROSL/DRAWBACK refunds should be accelerated as present refund procedure is taking several months for payments,’ said Sanwar Mal Saraf, MD, Saraf Textile Mills Pvt Limited. He further added, “The Government should take strong steps by declaring benign policies and swift procedures, failing which it will, not only betray the entrepreneurs but also, thousands of employees who are dependent on this industry for their bread and butter ’.

Strikes and Protest to Follow Soon says Some Exporters

Across India, garment exporters are threatening strikes if their demands for the duty drawback rate to be raised are not met. The Government lowered the duty drawback rate for garment exports from 7.7 percent to two percent on October 1. Since then, garment exporters have complained that their business are being unduly affected and have called for softer measures. However, since these complaints have so far fallen on deaf ears, they are considering more drastic action. “We have got nothing except assurance and therefore we have called for a meeting of our association and are also seeking help of other associations to raise our voice against this injustice,’ said Harish Dua, President of the Knitwear and Apparel Exporters Organisation.

Exporters feel that it would have been better if the government had made a nominal cut or given time till next year to exporters before imposing this massive cut suddenly. In the meanwhile AEPC Chairman is leaving no stone untouched and is regularly meeting the top officials of the Government for immediate respite. While speaking to Team PERFECT SOURCING exclusively Rajani shared, “A meeting was called by PRIME MINISTER’S OFFICE wherein Dr Mishra. , Revenue Secretary Hasmukh Adhia, Joint Secretary Drawback were present. We have asked them to extend ROSL and drawback at the old rates till 31st of March 2018. They were quite receptive to it. On the matter of embedded and invisible taxes they have asked us to handover a detailed list to the drawback committee. Hopefully, we should hear something positive very soon.




“In the meanwhile AEPC Chairman is leaving no stone untouched and is regularly meeting the top officials of the Government for immediate respite. While speaking to Team PERFECT SOURCING exclusively Rajani shared, “A meeting was called by PRIME MINISTER’S OFFICE wherein Dr Mishra. Revenue Secretary Hasmukh Adhia, Joint Secretary Drawback were present. We have asked them to extend ROSL and drawback at the old rates till 31st of March 2018. They were quite receptive to it. On the matter of embedded and invisible taxes they have asked us to handover a detailed list to the drawback committee. Hopefully, we should hear something positive very soon.”