Textile sector seeks 5% taxes under GST across all value chains

Uniform 5% rate will boost production and help create 35 mn jobs and attract $200 bn by 2025

The textile industry has urged the government to apply the lowest GST rate of 5 per cent across all value chains in the textile and apparel sector, to avoid any possibility of tax evasion.

While the final decision on the rate is yet to be decided, the draft rules propose four slabs -- 5, 8, 12 and 18 per cent of tax under GST. Currently, the applicable rates vary between 5 and 7 per cent, depending upon the use of raw materials and production of finished products.

In a representation to the Ministry of Commerce, apex industry body, the Clothing Manufacturers Association of India (CMAI), has said that a low GST rate of 5 per cent applied uniformly across the sector will propel domestic production, besides facilitating and encouraging voluntary compliance. This would help India achieve its target of generating 35 million jobs and attracting investments worth $200 billion by 2025, the representation said.

The demand assumes significance in the wake of textile sector being the largest employer of skilled and unskilled workforce after farming.

The textile industry provides direct employment to 45 million individuals and generates 60 million indirect jobs. The industry also contributes 10 per cent to manufacturing production in the country. With textiles commodities holding a seven per cent weightage in the Consumer Price Index (CPI), it is an essential commodity in the Indian consumption basket. Its functioning, therefore, has a considerable ripple effect not only on the economy, but also on the lifestyle of individuals.

“A uniform 5 per cent rate of GST with no exemptions in the sector will remove current blocked input taxes and tax cascading present in the industry, while also providing revenue enhancement for the government. Even with 50 epr cent compliance from the industry, the tax revenue across the value chain under a uniform GST rate will see and increment of Rs 7,000 crore,” said Rahul Mehta, President, CMAI.

A multi-tiered GST rate structure, on the other hand, will lead to distortions in production and consumption. It will also compromise fibre neutrality with producers moving to manufacturing garments made from fabrics that are taxed lower. Such a structure may also lead to disputes in the classification of textile products to different tax categories, experts believe.

“GST can transform the textile industry into a single market with a predictable tax system, enabling increased value addition, employment and exports. This scope of GST to carve out a promising future of sustained growth for the textile sector can be achieved only through the application of a uniform low GST rate to the entire sector,” said Mehta.

According to trade sources, a comprehensive uniform low GST rate has the potential of not only removing inefficiencies associated with exemptions and cascading in the sector, but also of increasing the government’s revenue three fold. Currently fabrics are exempted from taxes. They account for as much as three–fourth of total consumption spending on textiles, estimated to be around Rs 4.34 lakh crore in 2015-16. Extension of the tax base to fabrics and assuming 50 per cent of compliance, the government would generate Rs 10,850 crore.