GST notification to correct tax anomaly in textiles: FM

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Finance Minister Nirmala Sitharaman on Tuesday said the recent government notification on uniform goods and services tax (GST) at 12 per cent for the textile and apparel sector was aimed at correcting the inverted duty structure that was leading to accumulation of input tax credit by companies. She did not subscribe to the industry’s fears that this would lead to higher prices of finished products.

“Every time adjustments in rates do not lead to price increase for customers. Higher rate on inputs was leading to higher refunds to taxpayers and needed correction. Correction of the inverted duty structure was decided at the GST Council,” she said at a media briefing during her two-day visit to Jammu & Kashmir.

The notification, issued by the Central Board of Indirect Taxes and Customs, has not gone down well with many in the industry.

Sanjay Kumar Jain of Delhi-based TT, which has its main manufacturing unit at Tiruppur in Tamil Nadu, said the move will be advantageous only for 15 per cent of the industry. The remaining 85 per cent, mainly from the MSME segment, will be severely impacted.

“It is a bad deal for the industry on multiple counts. Consumers will have to pay 6-7 per cent more from January 1 since the prices of garments below ₹1,000 currently attract 5 per cent GST. Since MSMEs make 85 per cent of such garments, it will hit the demand and revenue of a sector already feeling the Covid19 pinch,” Jain added.

The garment sector has already seen a rise of around 20 per cent in prices due to spike in cotton and yarn rates in the past year.

Associations are of the opinion that the inverted duty structure will continue, given that some inputs like purified terephthalic acid, monoethylene glycol in the dyeing segment are under the higher bracket of 18 per cent GST.

“It is a concern for domestic players. They have to raise charges for the end-customers from 5 per cent to 12 per cent. For exporters, this is a good step. It will relieve any accumulation that might happen due to input tax credit,” said Raja Shanmugam, president, Tiruppur Exporters’ Association.

The industry has said the move will affect demand, leading to a rise in working capital requirements and squeeze production.

The textile ministry, on the other hand, said the move will help the man-made fibre (MMF) segment grow and emerge a big job provider.

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