GST Completes One Year...
July 1st 2017 was one of the revolutionary years for apparel industry as GST the biggest tax reform was introduced, however, post implementation apparel and textile industry has got into a rough phase. While the fabric manufacturers who did not paid any taxes earlier now pay 5% on fabrics and exporters who filled up GST are still waiting for refunds.
According to the data, apparel exports went down by 14% in January this year. According to AEPC the government has not yet cleared tax refunds worth Rs 4,097 crore under GST. It is predicted that India won’t be able to reach the $20 billion garment export target looking at the continued decline in apparel production. AEPC said India’s apparel production has shown a decline of 4.7% in February and 9.9% from April to February this year. FY18. As per the government figures, August, September, October, November and December recorded 6.4%, 7.2%, 11%, 13.1% and 13.5% dip respectively last year as well. There are two reasons for the continuous decline in growth. Lower demand for Indian-made garments in countries like the US and UK and delay in IGST refunds has made the situation worse. This has affected the industry majorly as due to fund blockage the manufacturers are not able to pay suppliers on time.
According to the Apparel Export Promotion Council, embedded taxes for the garment sector, which include the levies on cotton, electricity, and input tax credit restrictions for man-made fibres which is purchased from unregistered dealers, put an additional
burden of about 4-5 per cent on the industry.
An informal committee set up by the Commerce Ministry to find alternative ways to compensate exporters once the Wto-incompatible export incentive schemes are withdrawn is closely examining how exporters could be compensated for the non-refunded taxes. The committee, headed by the Directorategeneral of Foreign Trade and comprising representatives from the industry and think-tanks, is also studying experiences of other countries.
Interestingly, the latest Economic Survey suggested that the GST Council should conduct a comprehensive review of embedded taxes arising from products left outside the GST (petroleum and electricity) and those that arise from the GST itself. The latter, for example, could include input tax credits that get blocked because of “tax inversion,” whereby taxes further back in the chain are greater than those up the chain. “This review should lead to an expeditious elimination of these embedded export taxes, which could provide an important boost to India’s manufacturing exports,” the Survey said. Although the Finance Ministry is trying to clear the back-log by organising fortnightly clearance camps, a substantial amount is still pending.
The overall impact of the new tax regime has been burdensome for the apparel exporters especially, small and medium exporters due to a considerable increase of working capital as well as higher transaction cost. Any piece of apparel or clothing whose taxable value does not exceed Rs 1000 per piece is taxed at 5% under GST while any apparel or clothing whose taxable value is more than Rs 1000 per piece is taxed at 12% GST. Since AEPC informed the Ministry of Commerce that there has been a shortfall of about 5% under the new GST regime, there are chances that blocked taxes might be refunded through higher drawbacks and ROSL along with GST input tax credit refund.