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India's textile industry is hurting under the GST tax rates

Jul 25, 2017

Textile industry’s apparel makers as well as wholesalers feel that the implementation of goods and services tax (GST) has literally brought their business to a standstill due to higher GST rates and due to the fact that unregistered suppliers together with customers are trying to stay out of the purview of the tax regime.

Prices of textile products are moving northwards with the government fixing a higher rate for them under the GST as compared to previous rates. Confederation of Indian Textile Industry (CITI), a textile industry organization, has asked the Indian government to cut GST rates on man made fiber and yarn from 18 percent to 12 percent. The body claims that the higher levy would pressurize domestic producers to source fabrics and yarn at cheaper rates from China and Indonesia.

GST rate bringing difficult days for SMEs of textile sector?

GST on India's textile industry

It seems the 18 percent GST levy rate is having a deleterious impact on India’s man-made fiber and yarn industry and its business prospects, particularly for the small players. India’s unorganized textile sector makes up around 85 percent of the retail market, according to a report by India Brand Equity Foundation. The proportion may reach 87 percent by 2019. Consequently, the Small and medium enterprises (SMEs) sector as well as the rest of the unorganized sector face big challenges since they are already operating on thin profits. Particularly, SMEs of the MMF/synthetic fiber and yarn sector may find it difficult to withstand market pressures with 18 percent GST rate as the levy on MMF is the highest among major textile-producing and supplying countries.

Read: GST impact on the Indian textile industry 

Competition from foreign players like China, Indonesia, Thailand

Moreover, the synthetic fiber sector is already struggling due to several factors including high prices and higher manufacturing cost due to high input prices and competition from China, Indonesia, South Korea, and Thailand. Textile industry body CITI claims that mill gate prices of MMF/synthetic fiber and yarn are higher in the country as compared to China, South Korea, and Indonesia. In fact, those countries have the lowest tax rates and therefore high export incentives to produce MMF textile goods for the international market.

A section of the textile industry also says that differential rates for cotton and synthetic fiber is a lost opportunity as far as bringing a uniform rate for the textile sector is concerned. A delegation of the textile industry has asked Finance Minister Arun Jaitley and Smriti Irani (textile minister) to reduce GST rates on man-made fiber (MMF) /synthetic fiber and yarn to 12 percent.

“Disadvantage… would keep surmounting as India’s free trade agreements (FTAs) with ASEAN (Association of South East Asian Nations) and South Asian FTA (Free Trade Area) would allow imports of these items from countries such as Thailand, Indonesia, and Bangladesh which offer MMF textile goods at cheap prices,” says CITI chairman.

There are also reports that textile businesses have been splitting holdings so that each holder is under the Rs. 20 lakh turnover limit in order to escape paying the GST.

This article was first published on LinkedIn by Muqbil Ahmar

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