Finance Minister Nirmala Sitharaman on Tuesday stated the latest authorities notification on uniform items and companies tax (GST) at 12 per cent for the textile and attire sector was geared toward correcting the inverted obligation construction that was main to accumulation of enter tax credit score by firms. She didn’t subscribe to the business’s fears that this might lead to increased costs of completed merchandise.
“Every time adjustments in rates do not lead to price increase for customers. Higher rate on inputs was leading to higher refunds to taxpayers and needed correction. Correction of the inverted duty structure was decided at the GST Council,” she stated at a media briefing throughout her two-day go to to Jammu & Kashmir.
The notification, issued by the Central Board of Indirect Taxes and Customs, has not gone down effectively with many in the business.
Sanjay Kumar Jain of Delhi-based TT, which has its most important manufacturing unit at Tiruppur in Tamil Nadu, stated the transfer might be advantageous just for 15 per cent of the business. The remaining 85 per cent, primarily from the micro, small and medium enterprises (MSMEs) phase, might be severely impacted.
“It is a bad deal for the industry on multiple counts. Consumers will have to pay 6-7 per cent more from January 1 since the prices of garments below ~1,000 currently attract 5 per cent GST. Since MSMEs make 85 per cent of such garments, it will hit the demand and revenue of a sector already feeling the Covid-19 pinch,” Jain added.
The garment sector has already seen an increase of round 20 per cent in costs due to spike in cotton and yarn charges in the previous 12 months.
Associations are of the opinion that the inverted obligation construction will proceed, provided that some inputs like purified terephthalic acid, monoethylene glycol in the dyeing phase are below the upper bracket of 18 per cent GST.
“It is a concern for domestic players. They have to raise charges for the end-customers from 5 per cent to 12 per cent. For exporters, this is a good step. It will relieve any accumulation that might happen due to input tax credit,” stated Raja Shanmugam, president, Tiruppur Exporters’ Association.
The business has stated the transfer will have an effect on demand, main to an increase in working capital necessities and squeeze manufacturing.
The textile ministry, then again, stated the transfer will assist the man-made fibre (MMF) phase develop and emerge a giant job supplier in the nation.
It stated the textile and attire business was having a long-pending demand — first below gross sales tax, then below value-added tax, and at last below the GST regime — for elimination of the inverted tax construction in the MMF worth chain.
“The GST on MMF, MMF yarn, and MMF fabrics were 18 per cent, 12 per cent, and 5 per cent, respectively. The taxation of inputs at higher rates than finished products created credit build-up and cost escalation. It further led to accumulation of taxes at various stages of the MMF value chain and blockage of crucial working capital for the industry,” the textile ministry stated in an announcement.
Experts stated though the GST Council’s transfer will deal with the inverted obligation construction, it would make objects costlier for purchasers.
For occasion, Rajat Bose, companion, Shardul Amarchand Mangaldas & Co, stated, “Undoubtedly, this will help in increasing cash flow and reduce the compliance burden for the assesse. It may increase the cost of finished goods.”
In truth, the Retailers Association of India’s Chief Executive Officer Kumar Rajagopalan stated the transfer just isn’t in anyone’s curiosity.
“On the business side, it will compound the financial burden of an already-stressed sector, slow its pace of recovery, and affect working capital requirements, especially in the case of MSMEs that account for 90 per cent of the industry. On the consumer side, it will lead to a rise in the prices of garments, hurting consumption. On the government side, it may lead to many unorganised businesses going out of the GST net,” stated Rajagopalan.
Ritesh Kanodia, companion, Dhruva Advisors, stated, “It is feared that such steep increase in GST rates might drive MSME players out of the GST net, thereby encouraging tax evasion.”
Parag Mehta, companion, N. A. Shah Associates, stated the better mechanism would have been to refund the amassed enter tax credit score to the producer or vendor. “This would have led to the overall ease in working capital and reduce the price of textile goods,” stated Mehta.
With inputs from Nikunj Ohri in New Delhi & Sharleen D’Souza in Mumbai