Retail News

Textile Sector Asks for Uniform 5% tax under GST across all value chains
April 4, 2017

The textile industry has urged the government to apply the lowest GST rate of 5% across all value chains in the textile and apparel sector, to avoid any possibility of tax evasion. While the final decision on the rate is yet to be decided, the draft rules propose four slabs -- 5, 8, 12 and 18% of tax under GST. Currently, the applicable rates vary between 5 and 7%, depending upon the use of raw materials and production of finished products. In a representation to the Ministry of Commerce, apex industry body, the Clothing Manufacturers Association of India (CMAI), has said that a low GST rate of 5% applied uniformly across the sector will propel domestic production, besides facilitating and encouraging voluntary compliance. This would help India achieve its target of generating 35 million jobs and attracting investments worth $200 billion by 2025. With textiles commodities holding a 7% weightage in the Consumer Price Index (CPI), it is an essential commodity in the Indian consumption basket. A uniform 5% rate of GST with no exemptions in the sector will remove current blocked input taxes and tax cascading present in the industry, while also providing revenue enhancement for the government. Even with 50% compliance from the industry, the tax revenue across the value chain under a uniform GST rate will see and increment of Rs 7,000 crore,” said Rahul Mehta, President, CMAI. A multi-tiered GST rate structure, on the other hand, will lead to distortions in production and consumption. It will also compromise fibre neutrality with producers moving to manufacturing garments made from fabrics that are taxed lower. Such a structure may also lead to disputes in the classification of textile products to different tax categories, experts believe. According to trade sources, a comprehensive uniform low GST rate has the potential of not only removing inefficiencies associated with exemptions and cascading in the sector, but also of increasing the government’s revenue three fold. Currently fabrics are exempted from taxes. They account for as much as three–fourth of total consumption spending on textiles, estimated to be around Rs 4.34 lakh crore in 2015-16. Extension of the tax base to fabrics and assuming 50 per cent of compliance, the government would generate Rs 10,850 crore.