Textiles products, especially those made from cotton yarn and fabric, are likely to cost more with the government setting a higher rate for them under the Goods and Services Tax (GST) to be rolled out from July 1.
A section of the industry believes differential rates for cotton and synthetic fibre under the new indirect tax regime will lead to interpretational issues.
The GST Council fixed a 5 percent rate on cotton fibre, yarn and fabric, which attract zero duty at present. However, some states levy a added tax (VAT) on cotton yarn and fabric in the range of 2 to 4 percent.
The apparel industry was looking forward to a simplified tax regime under GST with an single rate for the entire chain. The multiplicity of rates announced will lead to interpretational issues. Cotton chain was largely under optional duty route. Introduction of 5 percent tax will lead to increase in production cost.Ashok Rajani, Chairman, Apparel Export Promotion Council
Union Finance Minister Arun Jaitley announced that all natural fibres including cotton, cotton yarn, fabrics and ready-made garments d below Rs 1,000 have been classified under a 5 percent GST rate.
Garments d above Rs 1,000 will attract a 12 percent tax, while it will be 18 percent for synthetic or man-made fibres and synthetic yarn, with the fabric irrespective of fibre being classified under the 5 percent GST rate.
"As the textile industry has been under the optional route since 2004 and the fabrics have been under zero VAT rate, the 5 percent GST rate would bring substantial revenue apart from widely broad-basing the tax net across the textile chain and ensuring compliance," Southern India Mills Association Chairman M Senthilkumar said.
Chairman of The Cotton Textiles Export Promotion Council Ujwal Lahoti requested the government to announce drawback rates to take into account the un-rebated duties under GST and continue the rebate on state levies scheme for made ups and also extend it to fabrics and yarn.
However, Confederation of Indian Textiles Industry Chairman J Tulasidaran told PTI that the entire textiles chain will benefit and the inflation in apparel will come down, thereby benefiting the buyers.
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