Synthetic fabric makers to feel the pinch due to higher input tax
The textiles sector is happy with the introduction of the goods and services tax (GST) because there is tax neutrality in respect of fibres and the entire value chain has been covered in the new regime.
Earlier, cotton and natural were not taxed. Makers of garments and denim are relieved because they say that price increases, if at all they happen, will not be sharp.
However, synthetic fabric makers will feel the pinch due to a much higher input tax to be paid compared to the tax on the final product and hence the input tax credit they get will be low. Exporters say anomalies in the GST will go when the export policy is announced.
Rahul Mehta, president, Clothing Manufacturers Association of India (CMAI), is not worried about two GST slabs for garments. He said, “With input tax credits and local levies being merged with the GST, those selling essential garments below ~999 will save on taxes, making their products more affordable. There may be a small increase in the tax incidence on garments whose price is more than ~1,000, after accounting for all the input tax credits.”
The CMAI is working with all stakeholders of the textile value chain to identify the challenges that may need specific rules to allow ease of doing business.
But all may not be well for synthetic or manmade textiles. Srinarain Aggrwal, chairman, Synthetic and Rayon Textiles Exports Promotion Council, said: “For the domestic market, synthetic fabric makers will be paying higher tax on raw material while the GST on the fabric they make will be at 5 per cent. Hence there will be a huge accumulated (unclaimed) input tax credit, which will result in fabric makers raising prices.
To avoid this, the government must refund extra tax paid on inputs. This will be an issue for exporters as their refund claims will also block working capital and hence when the government addresses exports issues, we hope this is taken care of.”
An executive of a company using man-made fibre said the GST on synthetic yarn should be reduced to 12 per cent. In the absence of this, Surat-based cheaper synthetic sari makers will face huge problems.
For denim manufacturers like Nandan Denim Ltd (NDL), the GST impact would more or less be neutral since both cotton yarn and fabric are in the five per cent slab.
However, denim jeans, which are priced mostly above ~1,000 in the organised market, will attract higher rates. However, industry sources say that instead of a retail price rise, middlemen may be forced to squeeze margins.
Not just pure cotton denim, even blends might see a neutral impact, said Govind Sharda, president of NDL.