GST impact analysis - Textile & Apparels

TEXTILE AND APPAREL TEXTILE AND APPAREL TEXTILE AND APPAREL TEXTILE AND APPAREL

GST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSIS

BY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & CO.35A Raja 35A Raja 35A Raja 35A Raja BasantBasantBasantBasant Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 7000299830112891, 033 241977369830112891, 033 241977369830112891, 033 241977369830112891, 033 24197736www.bharatds.comwww.bharatds.comwww.bharatds.comwww.bharatds.comshwetabsarawgee@[email protected]@[email protected]

INDUSTRY

OVERVIEW

Composition is primarily SSI and unorganized sector

Huge Employment Generation

Large Contributor to forex earnings ie Exports

Low Indirect Tax Incidence

Integrated Units as well as stand alone Looms

High Price Sensitivity

FEATURES

BHARAT D SARAWGEE & CO.

VALUE CHAIN

FIBRE

PRD

PRODUCT

SPINNING WEAVING FINISHINGAPPAREL

MANUF

FINISHING

FIBRE FABRICYARN APPAREL


PRODUCT PROFILE

NATURAL

FIBRESMAN MADE FIBRES (MMF)

FIBRE YARN FABRIC APPAREL

REST OF THE WORLD

Natural Fibres MMF

INDIA

Natural Fibres MMF


GST- LEGAL FRAMEWORK

SGST VAT

Entry Tax

Purchase Tax

Octroi

Luxury Tax

CGST

ED

Service Tax

IGST CVD

SAD

CST

Dual Model GST

CGST for Central Taxes

SGST for State Taxes

Cross Credit not allowed

IGST for Interstate and Import

Can be setoff against CGST and

SGST

Destination Based Tax

Consuming state will collect Tax


PROPOSED GST RATES

Particulars Rates

Exempted Goods and Services Nil

Precious Metal 2%-6%

Merit Goods 12%

General Rate 17%-18%

De Merit Goods 40%

The above rates are total of SGST and CGST

Only One CGST rate, SGST rate may vary within a small band


CURRENT INDIRECT TAX STRUCTURE

Lack of Fibre Neutrality- Duty differentiation basis Fibre Category

Variation in tax rates basis Integration- Discouragement of Integarted plants with higher Duties

SSI exemption availed by 80% of the Industry

Classification Dispute- Saree Fabric or Apparel?

Nil rate w/o CENVAT is mostly adopted by the players in the Natural Fibre segment

Blocked Input taxes pushed to production

Duty Drawback schemes in Exports

EXISTING INDIRECT TAXATION- FEATURES


CURRENT TAX SCENARIO- EXCISE DUTY

TYPE FIBRE YARN FABRIC Ready made Garments (RMG)

NATURAL

FIBRES

0% without

CENVAT and

6% with

CENVAT

0% without CENVAT

and 6% with

CENVAT

0% without CENVAT

and 6% with

CENVAT

2% w/o CENVAT and 12.5% with CENVAT

items with MRP>=Rs 1000 sold under brand

name

OR

0% w/o CENVAT and 6% with CENVAT

MMF 12% with

CENVAT

12% with CENVAT 12% with CENVAT 2% w/o CENVAT and 12.5% with CENVAT

items with MRP>=Rs 1000 sold under brand

name

OR

0% w/o CENVAT and 12.5% with CENVAT

480 companies rated by ICRA in spinning and weaving industry of over 57000 crore turnover, the excise incidence is

only 1% as the chain is mostly cotton based.Source- ICRA


CURRENT TAX SCENARIO- VAT

FIBRE YARN FABRIC Ready made

Garments (RMG)

NATURAL

FIBRES

0% -6% 0% -6% 0% -6% 4% -6%

MMF 4% -8% 4% -8% 4% -8% 4% -8%


CURRENT TAX RATES- PRODUCT WISE

State and central Taxes Combined

Textile CategoriesTextile CategoriesTextile CategoriesTextile Categories RNR (%)RNR (%)RNR (%)RNR (%)

Khadi, cotton textiles (handlooms) 4.04.04.04.0

Cotton textiles 7.1

Woollen textiles 9.3

Silk textiles 9.6

Art silk, synthetic fibre textiles 10.2

Jute, hemp, mesta textiles 9.0

Carpet weaving 5.6

Readymade garments* 10.5

Miscellaneous textile products 12.0

All SegmentsAll SegmentsAll SegmentsAll Segments 9.39.39.39.3

IMPACT ANALYSIS

IMPACT ANALYSIS

NATURAL FIBRES

NATURAL FIBRES

Textile Input Goods

Non Textile Input Goods

Capital Inputs

Input Services

VAT/CST

ED, VAT/CST /BCD,CVD,SAD

ED,VAT/CST

CGST, SGST/IGST

CGST, SGST/IGST

CGST,SGST/ IGST/BCD,IGST

ST

CGST, SGST/IGST

FIB

RE

Mills/Powerlooms

Current Taxes

GST Regime

Credittable in GST

GST ON VALUE CHAIN OF NATURAL (COTTON) FIBRE

Textile Input Goods

Non Textile Input Goods

Capital Inputs

Input Services

VAT/CST

CGST, SGST/IGST

ED,VAT/CST

CGST, SGST/IGST

ED, VAT/CST /BCD,CVD,SAD

CGST,SGST/ IGST/BCD,IGST

CGST, SGST/IGST

ST

ED,VAT/CST

CGST, SGST/IGST

Apparel Factory

Blocked Credit -Existing

YAR

N

F

AB

RIC

Assumed that all the players are on optional route of nil excise duty

AP

PA

RE

LS T

EX

TILE

ITE

MS


Textiles even if placed in merit Goods, the proposed rate is high compared to 4%-6% RNR for Cotton Textiles

Blocking of Working Capital on account of payment of taxes

Market highly price sensitive- Higher GST will increase price -detrimental to market share

Input taxes blocked will be passed on to the consumer

Removal of duty difference in Integrated Mills and Power looms -Promotion of Process Integration and earning of economies of scale

Difficult to break Tax Net- Exemption limit is only Rs 10 lacs

IMPACT


Incentive to Modernisation- Cost of Input Capital Goods will be lowered to the extent of input Credit

Compliance simplification- One Tax one law

Incentive to deal with GST compliant suppliers, as Input Credit not taken by the non complied supplier will add to the cost

IMPACT


MAN MADE FIBRES

Fibre Neutrality in Textile Eco System- Similar duties for the industry with nodifferentiation to Natural fibres

Level Playing Field- will be competitive with Cotton textiles in line with Worldmarket scenario

Encouragement for production of MMF against Cotton

Huge Boost for increase in Export Market- Heavy demand for MMF

Import of Machinery will become cheaper as credit of IGST will be availableagainst earlier non utilization of CVD- incentives of Duty refund on Capital goodsavailable in Natural Fibres only

IMPACT


Export to be classified as Zero rated Supply

Input Credits on goods and services will be available as refund

Duty Drawback Scheme existing will become defunct

In case of Duty Drawback rates higher than input credit refund, profitability will be impacted

Blockage of Working Capital for payment of taxes up front

IMPACT


Imported fabric in country will become competitive on account of Credit of IGST against earlier non availment of CVD credit to importers

Export boost on account of total refund of input taxes

IMPACT


ED on MRP concept will be replaced by Transaction Value- subsidy

Blocking of Funds in Interstate Stock Transfer

Deletion of Entry tax from state list

Elimination of CST underrecoveries for traders

Elimination of state boundaries and paper work, leading to economic transportation and reduction in cost.

Additional Monthly Returns

Complex Credit mechanism, every state to have three credit pools.

GENERAL IMPACT


Average RNR for Industry is approx is 9.3 with Ready made Garments being highest

18% Standard GST is very High for the sector , demotivation to Make in India strategy

12% GST for Merit Goods will also be higher compared to existing RNR

All the items in the value chain ie textile inputs and outputs to carry similar rate for nonblocking of credits

Increased revenue for Government may be shared with the Industry in form of improvedsubsidy scheme

Standard GST rate of 18% may Dis incentivize Exports

REPRESENTATION BY THE INDUSTRY


Difficult to bring Small Scale units and unorganized sector under Tax Net- (Around5 lacs powerloom units and and knitting units in India under Unorganised sector)

Huge Compliance to be made by SSI units , not doing any compliance in currentscenario

Sharp Increase in price of Cotton Garments

CHALLENGES


THANK YOU

Law

GST impact analysis - Textile & Apparels