The textile industry has urged the finance ministry to reduce the proposed 18% goods and services tax (GST) rate on man-made fibres and yarn to at most 12% to somewhat correct a historical imbalance in favour of the country’s cotton-based textile structure. While the government has kept GST for cotton fibre and yarn at 5%, the same as now (although there is no excise duty on cotton fibre and yarn now, states impose a 5% VAT); the tax rates for man-made fibre and yarn have been fixed at 18%.
Although the current tax incidence for man-made fibre and yarn producers is roughly around the same level (17.5%, including both excise duty and value-added tax), it didn’t bridge the duty existing differential with the cotton fibre and yarn.
Noted textiles expert DK Nair said three things need to be sorted out urgently. First, this was a great opportunity for the government to fix the GST rate for man-made fibre at best at 12% to encourage companies to diversify from cotton-based textile segment. Second, the GST rate for man-made fibre-spun yarn has been fixed at 18%, way above the current tax incidence of around 5% (while there is an optional excise duty, states impose a 5% VAT). Third, while the GST rate for job work in textile yarn and fabric manufacturing segments has been announced, the government is yet to declare the tax rates for the job work for garments and made-ups, which will lead to unnecessary confusion.