Textile sector of India is one of the top contributors toward the development of the Indian economy, concerning GDP, employment, export promotion, etc. Known as one of the oldest manufacturing industry in the country and the second largest, after agriculture, the textile industry employs both skilled and unskilled people. The industry contributes over 10 percent of the total annual exports of the country which is likely to increase under the new Goods and Services Tax (GST) regime.
The textile industry has two segments, organised and unorganised. The unorganised textile sector includes handicraft, handloom, small and medium scale mills whereas an organised sector consists of spinning, garment and apparel which uses modern machinery and techniques. Under the GST purview, the rate structure for textile is decided at 5% for cotton fibre and 18% for manmade synthetic fibre while totally exempting silk and jute from the same. The rate of GST on apparels is also decided based on the category, as the apparels whose cost is below Rs. 1000 will attract 5% GST and apparels above this mark will attract 12% GST.
The GST council has mentioned some rules regarding the e-way bill and rates. At the same time, the GST rates on job work of textiles and the related products that are manufactured are reduced from 18% to 5%. With the implementation of GST, the difficult data of the rates and categorisation of GST in the textile sector has been eased out. The decline in pricing will invert the supply rule directly, and there will be a boost in demand instantly. Due to the fall in price, there will be competition in the market thus creating a healthy environment for export. However, on the domestic front, the manufacturers may face a setback as the price fall may result in less revenue generation.
Despite some changes under the GST regime, the textile sector is in for certain advantages with the implementation of the regime. The tax regime will impact the textile industry by bringing in following changes.
As a large chunk of the textile industry in the country works under the unorganised sector or the composition scheme, therefore creating a gap between the flow of ITC. If a registered taxpayer procures the input from taxpayers under the composition scheme or the unorganised sector, ITC will not be allowed for him. Now with the implementation of GST, the input credit system smoothly shifts the balance toward the organised sector.
By subsuming the different taxes such as the entry tax, luxury tax, Octroi, etc., the costs for the manufacturers will be reduced in the textile industry.
The cost of import of procuring the latest technology to manufacture textile goods is expensive because the excise duty paid for the same is not allowed at ITC. Under GST, however, ITC will be available for all the tax paid on capital goods.
The process of claiming ITC is streamlined due to GST which allows the textile sector to be competitive in the export market. Due to the extensive cost of the procedure and delays made in the process of duty drawback, a lot of manufacturers and traders were not inclined towards export during the pre-GST regime. Under the GST regime, the duty drawback system has lost its significance, and input tax credit will be given as refund instead of the duty drawback schemes. This is an important boost that was required for promoting the export of textile products.
Though there are a few disadvantages of the GST on the textile industry, it is safe to say that it will help the sector in the long run. It will get many registered taxpayers under a well-maintained system. It can also be said that the new tax regime will help the textile industry expand itself in both the domestic as well as global markets thereby creating sustainable and long-term growth opportunities.