Goods and Services Tax Council had to drop a plan to hike the GST rates for most textile products in the man-made fiber value chain from 5%-12% in late December 2021 amid protests from the industry that the government may revisit it soon.
The rate of the hike was to take effect from 1st January 2022. But the decision was rolled back a day before amid protests from the industry.
The Finance minister on Monday explained that correcting the inverted duty structure in the textiles value chain is essential to attract investment in the sector.
The correction is required for the production-linked incentive scheme for the sector. Addressing a post Budget meeting with industry and trade representatives in Mumbai.
The Goods and Services Tax Council’s decision to alter the rate structure for textile products was aimed at the long unresolved issue of inverted duty structure in the synthetic textile segment.
Manufacturers of man-made fibers have long suffered from the duty disparity with the natural fiber segment.
In the GST system, these units suffered from the accumulated input tax credit. An inverted duty structure arises when the tax on inputs and intermediates is higher than that on finished products.
Sections of the apparel industry had welcomed the Goods and Services Tax Council’s decision to hike the rate they believed the high-value addition in apparel and the rate increase.
A group of ministers had earlier proposed the rate increases that keep this in view.
Several states, the fabrics-to-garments industry that which include thousands of MSMEs, tiny units that opposed this move as they saw it leading to a demand compression.
34th of the domestically produced textile items are sold in the domestic market. GST is increased that price increases will be 6 to7% that demand would fall by at least 3%. There will be inflationary pressure.
The expected Rs 7,000 crore additional Goods and Services Tax revenue is questionable. Former West Bengal finance minister wrote to Sitharaman ahead of the December 31 Goods and Services Tax Council meeting.
A group of ministers is currently reviewing the entire Goods and Services Tax (GST) rates structure would review the issues about the textiles value chain too and submit its report in February to March.
India’s competitiveness in the global textiles market is that synthetic textile products have a much larger share than cotton-based products it is seen to be blunted and owing to the inverted tax system.
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