[President Pranab Mukherjee addressing at the ceremony to launch the Goods & Service Tax (GST), in Central Hall of Parliament, in New Delhi on June 30, 2017. Vice President M. Hamid Ansari, Prime Minister Narendra Modi and other dignitaries are also seen.]
After a wait of more than a decade, Goods and Services Tax (GST) finally comes into effect from July 01, 2017. Terming it the “biggest tax reform ever” in independent India, the Union Government convened a Special Session of Parliament for the launch of GST. In the presence of Vice-President of India Mohammad Hamid Ansari, Lok Sabha Speaker Sumitra Mahajan, Union Finance Minister Arun Jaitley and other dignitaries on June 30, 2017 midnight, President Pranab Mukherjee and Prime Minister Narendra Modi jointly announced the beginning of GST regime in India.
The GST rollout comes after a lot of deliberations and revisions in rates of goods and services under various sectors. Indian Textiles, considered as one among the essential sectors, was so far exempted from taxes. With the implementation of GST, the textiles sector too comes under the ambit of tax. A glance at GST rates showed that those associated with the sector will not only pay a higher tax on yarn purchase, especially synthetic and man-made fiber yarns, but they will also have to pay taxes on entire supply chain and at each stage of manufacturing.
Garment and fabric manufacturers are worried about the impact of GST since, except for a brief period when Excise Duty was levied on it, they were by and large been free from any tax burden. Hence to allay the industry fear, Union Textile Minister Smriti Irani conveyed special messages and announced to constitute a separate GST cell at @TexMinIndia to guide stakeholders.
Prime Minister Modi too, while addressing at the inauguration ceremony of the “Textiles India 2017”, in Gandhinagar, Gujarat barely few hours before the GST rollout on June 30, 2017, reassured the industry that the event will go a long way in realizing India's inherent potential to become one of the most significant textiles and apparel sourcing and investment destinations.
Assurances fail to ease tension
Assurances by Prime Minister Modi and Union Textile Minister Smirti Irani however have failed to ease the tension and fear rampant in the industry ever since the GST rollout was announced.
“It is deadly to say the least, especially for the decentralized textile sector”, Ajoy Bhattchariya, former President of South Gujarat Chamber of Commerce, said while talking to ummid.com.
“A quick calculation of the existing GST rates can reveal that there is about 7-8% cost difference between composite and decentralized units. The survival of decentralized units will be tough if GST goes in its present form”, he added, saying those in decentralized sector will pay tax at more points than a vertically-integrated company, which will pay just at the end of the production process.
He said GST rates are different for cotton and synthetic yarns, and there are a good number of manufacturers who manufacture blended fabrics using cotton and synthetic yarns both at weaving stage.
“The GST structure is not only complicated but it is almost impossible for such manufacturers to properly maintain accounts”, he said.
Textile industry in India caters to the livelihood of more than 6 million families, and is second largest sector after agriculture. But, majority of people associated with the industry comes under decentralized and unorganized sector. And it is they who, the industry insiders say, may be at loss under GST regime.
“The GST will eliminate small traders like me. I have just started the business. I am already paying rent for my shop and, now I will need to cough up at least Rs 20,000 to hire an accountant to help me with filing returns for the GST,” Mukesh Jain, a Textile Trader, is quoted as saying by Indian Express.
Agreeing with Mukesh Jain, Manoj Agarwal, President of Federation of Surat Textile Traders Association (FSTTA), says, “The government instead of recovering the 12 per cent GST (which we used to pay as VAT) on yarn, it has imposed GST on the entire supply chain which includes yarn manufactures, weavers, processors, embroiderers, and traders. This is not acceptable to us.”
Domestic Textile Prices to go up
People associated with the industry are demanding from the government since last three years to impose anti-dumping duty on fabrics from outside India to curb uncontrolled imports from China. With the government still heeding to this demand, comes GST implementation after which it is feared that Chinese imports will go further up.
“The twin factors of higher tax on synthetic yarn and lower tax on fabric could double imports from China as prices of domestic fabric would rise”, Sri Narain Aggarwal, Chairman, Synthetic and Rayon Textiles Exports Promotion Council is quoted by Business-Standard.
According to him, at present India's fabric import from China, largely synthetic and cheaper by around 10 per cent, is estimated at around Rs.4,000 crore.
["The Govt has imposed GST on the entire supply chain which includes yarn manufactures, weavers, processors, embroiderers, and traders. This is not acceptable to us." (Graphics: Scroll.in)]
Protests across country
Amid rising concerns and lack of clarity on how the market will move post-GST implementation, textile manufacturers and traders across India are on war-path since last one month. Protests were held at Delhi’s Jantar Mantar in the second week of June.
After the protest at Jantar Mantar failed to move the union government, a three-day agitation was called in Ahmedabad, Surat and other textile clusters from June 27-29 – the time when Prime Minister Modi was in Gandhinagar for the launch of 3-day event “Textiles India 2017”.
Members of the Tamil Nadu Power Loom Federation are also on strike in Salem, Karur and Namakkal districts against GST and seeking to exempt the industry from the tax. “We pay tax for the yarn, and again paying tax for the finished product is not justified”, a federation member said. “Moreover, being small scale, the GST taxation procedure is too complicated.”
Textile traders in Kolkata are also up in arms against the government as they feel that the cascading effect of the GST will spike the prices of readymade garments.
"Textile has been classified under essential commodity/goods of special importance. Crores of livelihoods are associated with it. It will spell doom for both the textile business and other ancillary industries associated with it," Arun Bhuwalka, president of the Chamber of Textile Trade and Industry, id quoted by The Times of India.
According to Mahendra Jain, Secretary of the chamber, Bengal stands to lose the most if the GST is not rolled back.
"Bengal is not a manufacturing state anymore. It is a hub for value addition because the artisans are based here. If the tax is levied, why will the manufacturing states send raw materials to Bengal?" he asked.
Threatening to intensify the stir FSTTA President Manoj Agarwal said, “We have so far decided not to register ourselves under GST and if a solution is not found by June 30, then we will go for an indefinite strike.”
There are some who are upbeat
Not everyone is unhappy with the GST implementation. There is a section in the industry that is upbeat and feels rejuvenated.
“As the textile sector has been under the optional route since 2004 and fabrics under the zero VAT rate, 5 per cent GST would bring substantial revenue and ensure tax compliance as well”, M Senthilkumar, Chairman of the Southern India Mills' Association Chairman, said.
“The 5 per cent GST rate on cotton fiber would benefit 20 million cotton farmers, while the same rate on readymade garments below Rs.1,000 would benefit the common man”, he added.
As against the majority view, some industry insiders even feel that the GST implementation at its initial stage may be tricky for decentralized sector. But, they will definitely gain in the longer run.
“A significant portion of the textile industry in India operates under the unorganized sector or composition scheme, thus creating a gap in flow of input tax credit. Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector”, industry sources said.
[Aleem Faizee is Founder Editor ummid.com. This article is originally written for monthly magazine Textile Value Chain and appeared in its July issue]