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NEW DELHI : The revamp of the Goods and Services Tax (GST) rates applicable to the textile industry to correct a tax anomaly from 1 January will save working capital for businesses, reduce compliance burden and resolve input tax credit related hassles, the textiles ministry said on Monday.
The GST Council had in September decided to correct the tax anomaly called inverted duty structure—a situation where tax outgo on raw materials is more than that on the finished products. Accordingly, the government last week announced the new tax rates.
Mint reported on 19 November that 18 items including, woven fabrics of cotton, silk and wool, coir mats, matting and floor covering, apparel and clothing accessories of sale value upto Rs. 1,000 and footwear priced upto Rs.1,000 a pair were moved from the 5% slab to 12% slab.
The textiles ministry stated that the new rate-- uniform GST rate of 12 %--on manmade (synthetic) fibre, manmade fibre yarn, manmade fabrics and apparel has addressed the inverted tax structure in the manmade textile value chain.
The rates prior to the change takes effect on manmade fibre, manmade fibre yarn and manmade fibre fabrics are 18%, 12% and 5% respectively. The taxation of inputs at higher rates than finished products created build-up of credits and cascading costs. It further led to accumulation of taxes at various stages of manmade fibre value chain and blockage of crucial working capital for the industry, textile ministry said.
The changed rates will help this segment grow and emerge as a big job provider in the country, the ministry said.
The tax anomaly had in the past led to a situation where businesses were not able to use the tax credits fully to settle their final output tax liability, leading to accumulation of unused tax credits. “Though there is a provision in GST law to claim the unutilised input tax credit (ITC) as a refund, but there were other complications and resulted more compliance burden. The inverted tax structure caused effective increase in rate of taxation of the sector. The world textiles trade has been moving towards manmade fibre but India was not able to take advantage of the trend as its manmade fibre segment was throttled by inverted tax regime," the textile ministry explained.
This 12% uniform GST rate is likely to contribute positively to the growth of the sector, it said. The uniform rate of 12% for entire value chain of manmade fibre textiles sector will be benefiting and save lot of working capital. It will reduce the compliance burden of the industry players. Uniformity of GST rates will be helpful to resolve the input tax credit residues that accumulated due to the inverted tax structure earlier, the ministry said.
