FROM THE EDITOR-IN-CHIEF’ s DESK …
Wherever I go today, the only conversation that I hear is about GST and its probable impact on business. No one really understands the full implications, and everyone is interpreting the document in their own unique way. But for sure there are some major concerning points that have been raised by industry experts, however the Government does not seem to be in a mood to listen, as of now …
No one is challenging the fact that GST is a major turning point for the Indian economy as it will help in bringing industries under a uniform market, reducing the tax compliance of different states under the present VAT structure. This will make carrying out business activities much easier for companies operating in more than one state. Also, economists are claiming that the GDP will rise by 1-2 % due to this reform alone.
While industries debate and confused public goes on a buying spree, as retailers announce huge clearance sales …, the textile industry is divided on how the reforms would impact business along the supply chain, though there is conviction that it would have a positive influence on competitiveness in the long run.
The two major concerns, besides the lack of tax uniformity( fibre neutrality) are regarding credit accumulation and indirect benefit to imported fabrics …, both of which will have a negative impact on the business.
The way GST rates stand today, there will be accumulated credit at every level, of the chain. In the hands of weavers at the time of selling greige fabric to traders, because at the input stage credit on man-made filaments and artificial yarn is 18 per cent, whereas the GST rate on greige fabric stands at five per cent. Similarly, when traders send the fabric for further job work – dyeing, printing, embroidery, and other value additions – they are deemed to be a service( jobwork) and are liable to a GST tax rate of 18 per cent. This results in accumulated credit in the hands of traders, where their input tax credit is 18 per cent at the processing and value addition stage, but they have to pay five per cent on processed and value-added fabric. It would have been better if accumulated tax credit in textiles was refundable in the hands of the weaver or the trader, or both.
Domestic fabric mills in centres like Surat are protesting the law as under the new GST tax structure, fabrics can be imported at a basic rate of customs duty, which is 7.5 per cent plus the five per cent GST rate. Therefore, under the new regime, imported fabric will be cheaper than domestic fabric.
Further, the GST Council’ s decision to consider any fresh rate revision only after three months is another severe blow to the garment industry, as more than 80 per cent of the garment / made-ups manufacturing units are in the decentralized sector and undertake jobwork. There is a real fear that these units will become unviable after the imposition of 18 per cent service tax on jobwork, forcing them to close down and render hundreds of thousands of people jobless.
Another overriding concern, is whether Indian businesses and the textile supply chain in particular is ready for the implementation?
Though several seminars, workshops are being organized and many helplines aer being created by MoT and Associations, the confidence in the same is lacking among the players. One garment exporter jokingly said to me …“ When my CA doesn’ t understand the GST, how can I understand it”!
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8 Apparel Online India | JULY 1-15, 2017 | www. apparelresources. com