The textile industry of India is famous for its craftsmanship and unique designs all over the world. Starting as early as the Indus Valley Civilization India’s textiles are famous for their fine quality and craftsmanship.
In modern-day, India is famous for its finely created textiles in high demand all over the world. Despite such high demand, the textile industry in India was unable to meet 100% demand of Indian textiles both organic and synthetic.
The textile industry in India has witnessed several changes in taxation under the new GST regime. The implication of GST will affect the industry and its growth in future. The textile production process that includes synthetic & artificial fibers and naturally created fibers.
The GST regime offers many benefits to the industry players in the domestic market that aim at strengthening the domestic market creating new opportunities for new businesses in the textile industry. The advent of GST in the textile sector will encourage more organized structure in implementation in the textile industry.
The GST brings forth transparent and simple taxation process that is fast paced and saves time from filing taxation at multiple levels for goods and services offered by the textile industry. The textile industry has raised concerns for a long while.
These are the concerns for duty disparity that is preventing the domestic textile producers from expanding their operations and scaling up their manufacturing for better revenue via exports. This is consequently hurting the nation’s exports in textiles leading to the loss of revenue.
Cotton based textiles are an important part of the nation’s economy and duty relaxation plays an important role in business expansion in different parts of the country. The cotton fibers and textiles witness more effort and time consumption compared to the production of the synthetic and artificial fibers.
Hence, it is possible the government will introduce special taxation relief and incentives for the cotton textile industry. The overall consumption of textiles made from synthetic and artificial fibers at the global scale are 70%.
With duties and taxation streamlined and simplified. This makes it easy for new and existing businesses to buy and sell synthetic and artificial textiles.
In view of ICRA, a lower rate of 12% is recommended by the Dr. Arvind Subramanian Committee is likely to have a negative impact on the textile sector. In this case, especially the cotton value chain, that is at present attracting a zero central excise duty (under optional route).
Unlike the synthetic fiber sector, where the fiber attracts excise duty at the production stage (unlike cotton). Hence, there is an incentive for the downstream players in the synthetic sector to avail the Input Credit Tax (ITC).
The textile industry is broadly divided into nine categories when we talk about the taxation policy. The current taxes vary from 4% to 12% based on these categories.
Further, unorganized players who are given tax exemptions on the basis of the size of their operations dominate the textile sector.
There are different taxation policies for cotton and man-made fibers: Zero duty for cotton fibers as compared to high excise duty structure of nearly 12.5% on man-made fibers.
With the implementation of the GST, there will be uniform taxation policies that will cause a blockage as the input taxes will be eliminated since GST is a consumption tax. Zero rating on exports under GST will increase exports further without the need for various subsidy schemes.
Goods movement within the states will be much easier as many local state taxes that are levied on the borders of states will evade and free movement of goods will get allowed. The cotton and synthetic fiber are also subject to 4%-5% state VAT, which will be evaded by the GST.
However, if the duty treatment of all cotton and synthetic fibers remains the same, prices of textile items made of cotton fiber could rise a tad.
Nevertheless, the equal tax treatment policy will give a rise to man-made fiber production and its exports as well. The industry has since a long time, been complaining that the duty disparity is barring domestic producers from scaling up operations and, eventually ending up hurting India’s export competitiveness in artificial and synthetic textiles.
This is because while artificial and synthetic fibers account for around 70% of the world’s total fiber consumption, they make up for less than 30% of India’s demand.
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