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IMPACT OF GST ON TEXTILES INDUSTRY

India’s textiles industry is one of the oldest industries in Indian economy dating back several centuries. Role of Textile Industry in India GDP has been quite significant and beneficial in the economic and social upliftment of the citizens of the country. The worldwide trade of textiles and clothing has boosted up the GDP of India to a great extent as this sector has brought in a huge amount of revenue in the country. The Indian Textiles and Apparel Industry contributes nearly to 10% of manufacturing production, 2% of India’s GDP and constitute 13% of Country’s export earnings.

Panipat, Ludhiana, Varanasi, Ahmedabad, Surat, Jaipur, Aurangabad are some of the famous textiles destinations of the region.

Introduction of GST regime w.e.f. 1st July 2017 will impact the whole textiles industry. Fabrics which was exempt under the old structure would now be taxed at 5%. Most of the textile items will be taxed @5% and 12%. Introduction of GST, replacing the present indirect taxation could have considerable impact on textiles industry. Impact of Goods & Service Tax (GST) on textiles industry could be determined only after some time as regular changes are taking place in the GST Law.

Under the current Indirect taxation System, tax is linked with production (as opposed to consumption) which leads to blockage of input taxes which tends to higher cost of production, whereas under the GST regime, it is expected that it will eliminate the blockage of input tax credit caused due to break of input tax credit chain as it shifts the tax burden from production to consumption. In GST regime, most of the indirect taxes such as Central Excise Duty, Service Tax, VAT/Sales Tax and Entry Tax would get subsumed. That is why it is said that GST IS ONE NATION ONE TAX

Comparison:

  • 1. Benefit to consumers:

    We can compare the old structure and GST structure as under:

    Current Taxation System

    Product Sold from Panipat To Karnal

    Price = Rs.1000

    Vat @ 10 % i.e. Rs.100/-

    Product Sold From Karnal To Pune

    Cost = Rs.1100

    Profit = Rs.1000

    Sale Price = Rs.2100

    CST @ 10% = Rs.210/-

    Total cost of Product= Rs.2310/-

    Current Taxation System

    Product Sold from Panipat To Karnal

    Price = Rs. 1000

    CGST @ 5% = Rs.50/- SGST @ 5% = Rs.50/-

    Product Sold From Karnal To Pune

    Cost = Rs.1100

    Profit = Rs.1000

    Sale Price = Rs.2100

    IGST @ 10% = Rs.110 /- i.e. 210- CGST - SGST

    Total cost of Product= Rs.2210/-

    Difference of Cost of Product between Current Tax and under GST system is Rs.2310-2210 = Rs.100/- which will ultimately benefit the ultimate consumers at large.

  • 2. Easy IT Compliance Structure:

    Under the current indirect taxation system, there is complexity in compliance and administration whereas GST provides simplified and automated procedure through a common portal GSTN, which improves the environment of compliance.
  • 3. Easy refund on Exports:

    Presently, Manufacturer and Traders are not inclined towards export due to extensive procedure cost and deferment in the processing of duty drawback, under GST, the system of duty drawback will lose its significance. Input tax credit will be provided as a refund under GST instead of current duty drawback scheme. And it would not be incorrect to say that it will lead to promote export of textiles products which leads the Indian economy at boom.
  • 4. GST Rate Matters:

    Besides the positive impacts there may be few drawbacks of GST due to high rate of taxes. For Textiles industry and its products, the GST rate of 12% can have a negative impact. Earlier, the assesses are paying 1.2% Excise duty + 5-6% of VAT which amounts to 6-7.2 % tax, on the other hand under proposed GST regime, the assesse have to pay 12 % tax which would be costlier for the assesse.

Besides of this drawback it would not be incorrect to say that GST will help this industry in the long run by getting more registered taxpayers and a well regulated system.

Praneta Mahatma

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