GST cut on merchant services to 5%; relief for textile, apparel workers

High level of 18% tax on merchant services would have offered inverted duty structure

The sharp cut in GST (Goods and Services Tax) rates on the work provided by merchant manufacturers to the wholesalers and retailers is set to allow the former claim full input credit from the latter, which would help them compete with captive manufacturers, experts said.

In a major relief for textiles and apparel manufacturers, the GST Council announced a sharp cut in GST rates on the merchant services at 5 per cent from 18 per cent. Since many inputs were kept under various tax slabs, the high level of 18 per cent tax on merchant services would have offered inverted duty structure resulting into a negative impact on the business.

"We had represented to the government raising possible issues and the negative impact of high duty on merchant services. We thank the government for reducing GST rate to 5 per cent on merchant services, which would help job workers survive and compete with those with captive manufacturing facilities," said Rahul Mehta, president, Clothing Manufacturers' Association of India (CMAI).

The textiles and apparel industries in India are largely dependent upon the work with over two-thirds of the volume manufactured in merchant factories.

"The move of the GST Council will help many job workers generate self-employment. Since captive plants attracted 5 per cent, it was only job work which was kept under 18 pee cent slab. So, job workers needed to be aligned with captive manufacturers. Hence, the GST rate cut on job workers is a big relief for the entire textiles industry," said S Rajgopal, Executive Director, The Cotton Textiles Export Promotion Council (Texprocil).

"These are very good steps by the government, good for the highly decentralised sector. From processing of fabrics to embroidery, GST rate on making charges have been fixed at 5 per cent," said Srinarain Aggarwal, chairman, Synthetic and Rayon Textiles Exports Promotion Council.