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Indian Textile Industry stands United Against GST Implementation on Fabric

Strikes ends After Discussinos with FM;
Business to Resume in Few Days

30th June 2017 was indeed historic as India witnessed the biggest tax reform in 70 years of Independence. Goods and Service Tax is an indirect Tax applicable throughout India which cascaded multiple taxes levied by State and Central government, after 16 long years of discussion and debate on the pros and cons of GST Government of India gave a thumbs up to the bill and from 1st july 2017 28% Goods and Service Tax got implemented pan India.

A single tax will abolish the existing multiple taxes that differ from one state to another. Economists are predicting that the tax reform will change the way businesses are conducted in India and will bring about only good things to the country. Anything new comes with challenges, and Government is facing vehement protest against GST, sporadic yet effective.

Amidst of staging demonstration against GST from different sectors, the textile industry seems to be the most worked up, as under the new taxation system that was rolled out on July 1, it was decided that garments under Rs 1,000 would attract a five percent charge, while those above Rs 1,000 would attract a tax rate of 12%. Also, a five percent tax would be levied on fabric with no refund of unutilized input tax credit. Textile traders from different states of India decided to pull down shutters to showcase outrage. From Jaipur to Erode, from Surat to Kolkata, and Tirupur to Ludhiana almost all textile hubs remained closed against the GST. As per the traders they are not opposing the GST; but the 5% tax rate that is levied on the textile which they argue would ruin the industry. Some five lakh textile and garment shops across the state remained closed during this period of time. “We launched the movement with a 96-hour strike and the entire business community joined us. We hope the government would respect the sentiments of the business community said Mahendra Jain, honorary secretary of Chamber of Textile Trade and Industry. Close to six big markets, almost all the shops outside and even stalls stayed shut in central Kolkata.

"All the markets, including New Market, Treasure Island and Shreeram Arcade, were shut with close to 20,000 traders participating in the protest. Cloth markets in major Gujarat cities, including Surat, Ahmedabad, Bhavnagar and Rajkot, remained shut in protest as a result of which 165 textile trading markets in Surat which have more than 70,000 shops, with a daily turnover of over Rs 100 crore were affected. Surat is one of the major textile trade hubs in the country. Traders have maintained that the protest will continue until their demand is fulfilled. The Maskati market in Ahmedabad, a major textile centre in the state, wore a deserted look as around 25,000-30,000 traders observed a shutdown.

Traders in 13 wholesale markets in Mumbai including Mangaldas Market, Mulji Jetha Market, Swadeshi Market and Sindhi Market went on strike as GST regime started. They later withdrew it. Textile traders in the Hyderabad began a 72-hour strike, protesting against the GST proposed by the Centre. The Telangana State Federation of Textiles Association (TSFTA) said the textile trade bandh from 27June to 29 across the state will also see textile traders hitting the streets on June 30 to protest implementation of GST on textiles. Traders, who are already facing a stiff competition from local and international players, fear that there would be a complete collapse of the sector, leading to large-scale unemployment.

According to the president of TSFTA, the GST council in initial stages decided to levy GST only on products covered under VAT at state level or excise duty at the Centre and those which are not covered in categories are to be exempted. However, due to lobbying of 10 major manufacturers of textiles industries, the council of GST imposed tax on textiles at the last moment. This is shocking for textile traders Demanding exemption for textiles from the GST, Retail and wholesale shops and yarn merchants in Erode went on a three-day shut down. On the second day of the strike, called by the Erode Handloom Cloth Merchants Association, about 3,000 odd textile shops remained closed.

Cloth merchants observed state-wide bandh in Rajasthan to protest against imposition of 5 per cent sales tax on textiles under the GST regime. According to traders their key demand is to remove GST from fabric and implement it on apparel instead. The Government intervened and after a lot of discussions strikes was called off, but government has altogether denied this demand. According to FM, Arun Jaitely zero GST on fabrics will break the input tax credit chain and as a result, manufacturers of garments/made-ups won’t get credit of tax on previous stages. Another consequence of scrapping GST on fabrics will result in zero rating of imported fabrics, while domestic fabrics will continue to face input taxes. This will make domestic industry lose competitiveness to in global market, so their demand to exempt textile industry from GST has been denied by the Government but finance minister has promised to discuss the other proposals made by textile trader during the next meeting on 5thAugust 2017.

The textile industry has suffered a loss of an estimated Rs 40,000 crore due to the protest against GST since July 1. In Gujarat alone, the loss is roughly to the tune of about Rs 10,000 crore.

Manufacturers Fear Competition from Imported Fabrics Post GST

In the case of apparel imports, the government had earlier levied the Special Additional Duty (SAD) as a protection for the domestic players. With the GST, this duty protection stands removed and imported garments would be 5-6% cheaper. The Textile Industry fears that there will be an increase in imports from countries such as Bangladesh and China, where the cost of manufacturing is lower due to the availability of cheaper labour. Prior to the GST, the countervailing duty included six per cent excise duty on cotton and 12.5 per cent with Cenvat credit on polyester. The optional duty of two per cent with abatement of 40 per cent on it (i.e. 0.80 per cent) meant effective duty of 1.2 per cent without Cenvat credit. Around 4 per cent Special Additional Duty (SAD), along with cess, educational cess and others worked out to 5.5 per cent. Prior to the GST, traders had duty protection of 5.5 per cent from cheap import. After the GST, all duties have been subsumed in 5 per cent of the GST for both domestic manufacturers and importers. This, in effect, means no protection, as both domestic manufacturers and importers will be required to pay the same duty. Meanwhile, Head of the Textile Division, FICO (Federation of Industrial and Commercial Organization), Ludhiana, Ajit Lakra, had written to the government, expressing the concern of the Textile Industry on the issue of cheap imports. The imported polyester fabric would be cheaper than the madein- India polyester fabric.

Increase in Job Losses, Many Fear Unemployment

Every coin has two sides and so is with GST as well, as lakhs of workers working in powerlooms and processing units have been rendered jobless due to the shutdown of mills due to the ongoing strike. While the loom owners are afraid that the rise in their manufacturing cost will not be offset by the tax on products, textile workers are staring at an uncertain future. The powerlooms manufacture weave cloth, which is purchased by textile traders who then send it to the processing units for dyeing and printing. There are around 350 processing units in Surat with a daily turnover of approximately Rs 70 crore.

The weavers have, however, shut operation due to the lack of demand leading to piling of unsold stock. The printing mills have been running with leftover stock, making it difficult to keep operation going without any fresh supply, and as a result 70% of the factories have shut shop. According to the traders, they have incurred a loss of Rs 150 crore due to the ongoing stir and that huge stocks of unsold textiles have begun piling up in their shops, godowns and factories.