Industry | CLE
The GST Council overhauled the new tax regime reducing the 28 percent tax levied on 178 items to 18 percent or lesser.
CLE: Working for the betterment of the Industry
Most important of them all, the GST Council decided to slash the tax rate on leather, last and chemicals, apart from finished items like hand bags, purses and brief cases. The new rates became applicable from November 15. The council, which met at Guwahati, had decided to keep only 50 luxury and ‘sin’ goods like tobacco in the highest slab, paving the way for price cuts in a raft of commonly used goods from bags to purses.
Council for Leather Exports’ chairman Mukhtarul Amin thanked Union Finance Arun Jaitley for considering their request of reducing the GST on leather and chemicals. Earlier in October, Mukhtarul and PR Aqeel Ahmed, vicechairman CLE, along with other leather product exporters, appealed for a reduction in the tax from 12 percent to 5 percent.
“We welcome the proposal and thank the Government for considering our appeal. Presently all manufacturers, not only exporters, are trying to grapple with GST, and the transitionary phase has been a very difficult phase for us. Continuing to provide rate relief will help businesses to counter the rising prices on raw material and other utility costs,” said the chairman.
PR Aqeel said, “The impact of these changes would be positively felt in the next few months. The move would make life much easier for the small business entities. The
“We welcome the proposal and thank the Government for considering our appeal. Presently all manufacturers, not only exporters, are trying to grapple with GST, and the transitionary phase has been a very difficult phase for us.” – Mukhtarul Amin Chairman - Council for Leather Exports
decision of GST Council on pruning of the 28-slab list is a welcome move for many industries in manufacturing space. Though it was expected that there would be rate cuts, it was never expected that the list would be trimmed down so significantly.” The move was welcomed by the India Inc., which said that the ‘big changes in the GST rates’ would lead to a pickup in consumer demand and significantly revive the business sentiment. Though still many leather and footwear manufacturers are gingerly expectant about the economy and it’s bearing on their businesses. After the ordinary GDP growth of 5.7% in the first quarter of current fiscal, many manufacturers anticipate the GDP progression to spring back and close at 6.5% by the end this financial year. “Make in India” initiative and infrastructure investments have been perceived as key drivers for businesses. While the view is yet to be ascertained on impact of GST over the short and medium term. In the long run, many manufacturers hope that business wll be stable and progress will manifold. Meanwhile, the business houses are combatting with the teething problems and expect them to resolve sooner rather than later. PR Aqeel voiced, “With the rate reduction on a plethora of products, the next step of the government should be to safeguard that the advantage of the rate reduction goes to the consumers.” The effect of demonetization on the businesses has been mostly neutral. To stipulate an enormous impetus to the “Make in India” initiative, footwear sector foresees a need for major labor reforms and skill development initiatives. Accumulative raw material costs, low pull demand situation, poor business sentiment and government policies are seen as key challenge areas for companies—exporters are also undergoing unpredictability in their outlooks. Most of the business leaders believe that exchange rate would remain stable and in the range of Rs 63-67 to the dollar. Many organizations have taken onto cost cutting and operational initiatives as top strategy. “
Here are the edited excerpts from a discussion between Amit Chopra, MD, S&A with PR Aqeel Ahmed, ViceChairman, Council for Leather Exports.
Amit Chopra: Let me start by conferring the cautious optimistic mood that the exporters seem to be suggesting. What’s your view on the growth prospects for the leather industry? PR Aqeel Ahmed:
We hail the slew of measures taken by the GST Council under the Chairmanship of Arun Jaitley Union Finance Minister in its 22nd meet and 23rd meeting that concluded in Guwahati. CLE views that these measures will give immediate relief to the export sector which has been going through a difficult stressful phase due to various factors both global and domestic. These measures include reduction in the rate of GST on leather, chemicals and materials. The GST council has also made a provision
“We hail the slew of measures taken by the GST Council under the Chairmanship of Arun Jaitley Union Finance Minister…” – PR Aqeel Ahmed Vice Chairman–council for Leather Exports
for refund of GST for the previous months, which will ease the working capital stress. A facility of e-wallet has also been introduced for addressing the refund issue.
AC: What was the main concern for exporters? PR:
The changes which have been announced by GST Council, after its meeting recently, will give a great relief to the leather, footwear as well as to the accessories Industry for the immediate term, as the sector has been facing severe liquidity crunch after the introduction of GST. The industry was facing financial burden and significant outflow of capital on account of levy of higher GST rates on major segments of the manufacturing chain and requirement of upfront payment of GST and then claim refund Impacting them.
AC: What has been CLE’S primary demand on GST? PR:
CLE had demanded reduction of GST on finished and composition leather from 12 per cent to 5 per cent, as these are an essential material for the sector.
You see the weather in India, particularly the North, we have a window of only 3 months for leather garments, meanwhile in the overseas the winter season is for only 6 months, which makes it very difficult for the leather apparel manufacturers to be in business for the entire year. The council had asked for cut in GST rates on leather garments and gloves from 28 per cent to 12 per cent, so as to attract foreign investments in this sector. The government positively considered these requests, as the current situation is threatening to take away the business of Indian leather industry to competitors like Bangladesh, Vietnam and Indonesia.
Today, when you look around, you will realize that certain items are an essential part of one’s life. Shoes, wallets , belts and bags are carried by every individual. So these aren’t luxury items any more. In this pretext, we had approached the authorities to relook at the slab category, and we thank the Government for considering our appeal.
So, CLE’S aim is to foster better interaction among manufacturers and exporting units in India and play a very important role for its member companies. CLE is always taking up important issues related to the industry whether its exporters or local manufacturers of any leather or related products and thinking and working for the betterment of the leather industry as a whole.
GST Rate reduction from 12% to 5% GST rate has been reduced for the following types of finished leather and composition leather from 12% to 5%.
AC: How about the GST rate on footwear, both from exports and domestic point of view? PR:
By the 2020, the leather industry is aiming at increasing its turnover to $25 billion plus. In exports, it’s targeting $9 billion from present $5.85 billion and its domestic turnover to $13 billion from $6.50 billion. There is an immediate need to protect this industry as more than 75 per cent of the industry is concentrated in MSME segment.
We have had many deliberations on the footwear GST rate and hope the government considers the rate of footwear as well and bring it in the lower category of GST from 18%. It would certainly fortify and encourage Make in India efforts and to attract more investments. Also, a lower rate is desired considering footwear is a common consumer item. Manufacturers and Traders, particularly SMES, are facing issues in filing returns, which is increasing their compliance burden. So, even the Small businesses are getting impacted more. Some have cut their productions also. We have raised all the issues with the authorities and have got a positive response from the minister. But I suppose we will have to wait for a little while longer.
AC: Are there any timelines to achieve the growth levels in footwear sector? PR:
More than 4.5 million people are employed in this sector that accounts for exports of about $5.6 billion, and is dominated by small players working on single-digit margins. Unless the issue is addressed on an urgent basis, a number of units could shut shop in the coming months.
AC: Is there a shift happening in the sector. Are moving towards a formal economy? PR:
In exports, the entire fraternity has been ensuing the formal path. However, in the domestic, I think the shift was very evident from August onwards. In fact, towards the end of November last year, after we all sort of got away from the shock of demonetization, the shift had started happening. In the footwear business which does have a lot of organized players, a lot of shoes are sold are below the radar, and those got badly impacted. So these players are moving towards the formal sector. Retail side had been impact in the beginning of announcement of demonetization. However, after a quarter, I think we are seeing normalcy in that segment.
AC: How do you perceive the future growth? PR:
I belong to the faction of the 7% plus, and I think what is most important is that the next few quarters, hopefully after these measures and reliefs the growth rate should accelerate and for me 2018-2019 is more important than 2017-2018.
AC: The question then is what is holding back exports? PR:
What’s holding back growth and expansion today is the sentiment. Globally, the markets have been down. However, if you see the future business outlook, I think several companies are looking at the same positive manner as regards India.
AC: Where do you find the most pain? PR:
We are not seeing any perceptible change, in regard to improvement in liquidity by way of pumping in refunds into the companies, so it may take some more time. Frankly, uploading the invoices etc. I believe it is quite a challenge for a SME or MSME’S. However, GST is great for a company like ours. It brings in a lot of transparency across the industry and benefits from input tax credit. So, it is great and only teething trouble for maybe a quarter. We are all going through that. I hope by December we should be through the pain part and if some more easing of regulations and easing of uploading data, etc. happens, it will be helpful.
AC: Where do you continue to see the pain and what is it that you would like changed?
PR: GST being a transformational reform, there will be a lot of pain when you go into the new system. By the time our customers, suppliers and our stakeholders understand this it will take some time. Procedurally there are lots of issues, which are getting gradually resolved. Business has not stopped on account of GST; there was some slowdown, which is gradually coming back now.
AC: What do you think needs to be done to relieve the pain? PR:
For companies like ours, there is no issue at all in implementing GST. But for many export firms there were issues because input tax credits are getting delayed affected their working capital requirements and many of them came for more credit because they fell short of money. I think this recent announcement by the government that you can file it once in three months and for the whole chain to do it once in three months that has given a lot of relief to the system. Also, sound bites from government of showing sensitivity to the issue are a positive thing.
“The council had asked for cut in GST rates on leather garments and gloves from 28 per cent to 12 per cent, so as to attract foreign investments in this sector.”