Our Apparel industry is preparing itself for the GST which is expected to significantly reduce transaction cost and time on the one hand, but is also expected to increase procedural and compliance costs on the other. To gauge the impact of GST on Cotton garments a calculation based on the pre & post GST rates has been worked-out and it largely suggests that major items like T-shirts, shirts, pants, dresses and blouses would be cheaper post GST rollout in case they are branded and are priced at Rs. 1000/ and above.
In case of non-branded garments, there will not be any change since there was a 5% VAT and the applicable rate of GST would also be 5%. Raw cotton is expected to be little cheaper, but cotton yarn which is expected to attract 5% GST, will become a tad more expensive. Similarly cotton yarn exports will get little expensive, but since input tax credit would be available, composite mills would be benefitted as individual stage-wise taxation will not be levied.
Another positive outcome of the GST rollout is the significant reduction in the logistics cost and resultant efficiency in the movement of goods. Due to an inordinate amount of waiting time at check posts, today an Indian transport vehicle covers a distance of only 280 km per day on average as against the global average of 400 km and the US average of 700 km.The abolition of check posts due to the enabling of GST would lead to a faster and cheaper movement of goods between states.
In the current indirect tax regime, taxes are levied at each stage with excise duty being levied on manufacture. When this is compared with GST, which is levied only at point of sale and not at the point of purchase and manufacturing, the consumer will be bearing only the GST charged by the last dealer in the supply chain, thus simultaneously making it cheaper for the consumer and increasing the profitability of the business.
However, SMEs that manufacture consumer goods which are sold directly to end customers– and were hitherto exempt due to the turnover threshold– will come under the tax net and thus see their customers pay a higher price. Our Apparel Industry has been registering a double digit growth despite global headwinds vis-à-vis our competitors like Bangladesh, Vietnam, Pakistan and Sri Lanka. In spite of this, industry is deeply concerned on the amount of losses it will have to bear on account of the withdrawal of the schemes like RoSL (rebate on state levies), duty drawback, interest subvention, etc. AEPC has written to the finance minister to allow states to foment incentives on the inputs used under the RoSL scheme. AEPC is proactively creating awareness amongst its stake holders about the implications of GST. National Academy of Customs, Excise and Narcotics (NACEN) coached trainers have successfully conducted training programmes at nine locations in places like Gurgaon, Mumbai, Tirupur and Noida, for AEPC members. Over 1,500 participants have attended the orientation programme on GST through instructor lead sessions, videos, case studies and examples. Apart from this, 48 AEPC officials have also been given training on GST matters through these programs. AEPC is also facilitating members on GST compliance through Suvidha partner ASPs and GSP’s.
• Service tax
• Entry Tax
• Countervailing Duty
• Special Additional Customs Duty
Even as the GST for job working units in textiles has been cut from the proposed 18% to 5%, apparel, a major segment in the textile value chain, has been left out of the reduction. Garment exporters in Tirupur are now urging the government to levy only 5% GST for job working units in the apparel segment.
Only services which can be classified as ‘job work in relation to yarn and fabrics of textiles’ is eligible for the reduced rate of 5%.” This negative step would cause huge hardship to several micro industries in textile clusters like Tirupur,” said Raja M Shanmugham, President, Tirupur Exporters’ Association (TEA). In textile clusters like Tirupur, a host of operations including garment printing, embroidery, garment washing, ironing and packing are carried out by micro industries on a job work basis only. Some of these processes such as checking, ironing and packing and button fixing are actually carried out by people who take work home for job work. As the processes are only of B2B (business-to-business) nature and since the final product garments falls under the 5% slab, levying 18 % on job work will create an inverted duty scenario disturbing the seamless credit flow, thereby defeating the very objective behind GST. “Since these job workers fall in the middle of the textile manufacturing value chain where the credit would ultimately be passed on to the final manufacturer, there would be no revenue implication if the rates are kept at 5%,” he said.
The textile industry has urged the finance ministry to reduce the proposed 18% goods and services tax (GST) rate on man-made fibres and yarn to 12%. While the government has kept GST for cotton fibre and yarn at 5%, the same as now (although there is no excise duty on cotton fibre and yarn now, states impose a 5% VAT), the tax rates for man-made fibre and yarn have been fixed at 18%. Although the current tax incidence for man-made fibre and yarn producers is roughly around the same level (17.5%, including both excise duty and value-added tax), it didn’t bridge the duty existing differential within cotton fibre and yarn. There is still a lot of confusion among the industry about GST rates. Players feel that this could have been a chance for the government to fix the GST rate for man-made fibre at best at 12% to encourage companies to diversify from the cotton-based textile segment. Second, the GST rate for man-made fibre-spun yarn has been fixed at 18%, way above the current tax incidence of around 5% (while there is an optional excise duty, states impose a 5% VAT). Third, while the GST rate for job work in textile yarn and fabric manufacturing segments has been announced, the government is yet to declare the tax rates for the job work for garments and made-ups, which will lead to unnecessary confusion. The textile industry has urged the finance ministry to reduce the proposed 18% GST rate on man-made fibres and yarn to at most 12% to somewhat correct a historical imbalance in favour of the country’s cotton-based textile structure. Industry feels that the GST should have a uniform rate structure for all fibres and this disparity between natural and man-made fibres must end.
AEPC and National Securities Depository Limited (NSDL) have joined hands to provide end to end handholding on GST compliance related to online filing of returns. Under this institutional arrangement, AEPC will provide training and a GSTN aligned platform for online filing of returns and all other services related to GST compliance. A help desk has been established to answer the queries of exporters on the functionalities related to GST. NSDL e-Governance Infrastructure Limited (NSDL e-Governance) has been closely working with the Government of India as well as various State governments for providing and implementing e- Governance solutions across India. NSDL is among the 34 GST Suvidha Providers (GSP) appointed by GSTN to facilitate tax payers to comply under GST. It would be providing the complete GSTN compliance right from provision of interfaces to upload / download APIs in the format prescribed by GSTN to conversion of data to the required formats as desired by GSTN through their GSP as well as ASP (Application Serviced Provider) for facilitating GST compliance. The services will be provided to AEPC members at concessional rate under this arrangement. Commenting on the initiative, Ashok G Rajani, Chairman, Apparel Export Promotion Council said, “Goods and Services Tax (GST) is a major tax reform in indirect taxes which is due for implementation from July 1, 2017. After organising GST orientation programmes at nine apparel clusters for exporters, AEPC has entered a partnership with National Securities Depository Limited (NSDL) - which is a GSTN approved GST Suvidha Provider (GSP) - to enable a smooth transition into the new tax regime. I would like to thank NSDL for offering such a solution-based approach for apparel exporters. The help desk which has been set up as a part of this initiative will derive from the expertise of NSDL e-Governance Infrastructure for facilitating GST compliance. For technical queries related to GST, specially online registration, filing of returns, claiming of refunds, validation of funds and other GST compliances, AEPC has set up a help desk at various regions across India through its regional offices which will be providing support to the exporters in regional languages also. AEPC has also come out with a FAQ booklet for apparel exporters. The complete profiles, services of NSDL and helpdesk details are placed at www.aepcindia.com
Most of the textile chain has been exempted from taxes and entire garment exports are dependent on duty drawback now with GST. Most of the duty drawback benefit will reduce substantially, affecting profitability or even viability in many cases.
While welcoming the GST concept, we all know that under GST regime, duties and taxes will be refunded. However, there are many invisible duties and taxes which are not covered. For instance, once we build a factory for exports, the GST paid for the construction of the building is not refundable, though the same is added to the cost of product. Taxes paid on power, diesel, petrol, etc., which are used in production are non- refundable under GST. This will make our products less competitive in the international market. We as exporters request that drawback committee should look into the same and the taxes which are not visible should be refunded to the exporters to enable them to be competitive in the world market.
We as a garment industry welcome GST and are happy that on sales GST is 5%; however, the issue of concern is garment job work on which GST has been fixed at 18%. This will be a big blow for the garment industry and small and medium manufacturers. Also, man-made fibres and yarns are attracting 18% taxes so we will not be competitive in man-made fabric garments but will be very competitive in cotton products in the post-GST regime. If we talk about the domestic market, we will have excess input credit unadjusted due to excess input credit arising from garment job work GST, which in turn will make domestic garment prices increase by 3%.
There are a lot of concerns about the GST in the short term. It will take a while for things to settle down. Even the concerned departments are not clear about the implementation. I hope the Government proactively intervenes and eases things up.