GST Impact on the Textile industry Essay
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The Textile Industry consists of a large number of small Enterprise and a small number of Large Enterprise .It is one sector which is totally dominated by unorganized units ( 60% -& 70%) and SSI Units The sector has integrated plants involving spinning, weaving and Apparel manufacturing all under one roof as well as number of stand-alone units/Looms doing one activity in isolation.Textile Industry is an Employment-intensive industry, especially the Apparels and Handlooms value chain. The sector currently employs 35 million people directly, and in the last 2 years, itself has created over 5 lakh jobs.
The reason mainly for being in the unorganized sector is due to its intensive domination to skilled labor.
The textile industry plays a very important role in the development of this country in terms of GDP, employment or export promotion. 100% Foreign Direct Investment is allowed in this sector under the automatic route.In the global exports of Textiles India ranks 2nd after China. It is one of the major foreign exchange revenue earners of India. Out of the total exports textile has a share of around 16%. The Growth Rate is still not as high as countries as Bangladesh and Vietnam.
The introduction of GST will move the market share of the unorganized sector to the organized sector.
The consolidated regional markets will now open up PAN India thereby making the vibrant market structure.
GST will impact this industry at different levels of its value chain (Shown Below).
The various levels of impact are explained below:
Looking at the positives of this fiscal measure the key changes in the industry are explained below:-
In the long run, the major changes being seen in this industry which is regionally diverse will now have cross-border movement of materials. This is beneficial for the textile industry in the long run.
Being the oldest manufacturing industry it is imperative that all the players in the supply chain will benefit.
The implementation of the final rates is much lesser than that the previous regime. This will benefit the industry in the very long run.
The industry is basically broken into two parts one is the textile and yarn which is more inclined today in the unorganized sector side and which will move to the organized side with the implementation of GST.
A much lesser impact will be seen on the fabric and garment side of manufacturing because of the high capital investments and very intensive skilled labor usage.
Rates of taxes for textile is 5% for cotton and 18% for man-made textiles.
Jute and silk are out of the preview of GST.
Apparels will attract GST 5% all items below Rs.1000. It will attract GST of 12% for all items above Rs.1000.
GST for job work in the entire supply chain of textile manufacturing will be charged at 5%.
From the above, it is clear that Cotton fiber will be gaining momentum with the help of the GST rate.
The fragmented supply chain under the previous regime will look forward to being getting consolidated under one roof to avoid increasing cost of job work of 5% in this new regime of GST. A large portion of the apparel retailers will move to the composite scheme which is the major reason for being able to bring the cost down to the end consumer.
The negatives are few but implications in the current scenario are far-reaching
Freight to a large extent will determine the cross-border movement of material then taxes as in the earlier regime.
As in any industry in the short run margins and inventory clearance will be a major headache in the implementation of GST.
The headwinds in the immediate way forward will be faced by the domestic industry and not so much buy the exporters because the forms for claiming back all duties are very clear for exporters. The domestic industry in the retail segment will also be the first in the value chain to be able to eliminate the procedures of implementation of GST being a turnaround for the inventory during the immediate festive season pf Diwali which accounts for a large portion of retail garment sales.
Composite Scheme & The garment Retailer
A large number of retailers in the garment sector are having a turnover below 75 lakhs per annum and nearly a 100% do not need to pass on the input credit of GST to its buyers since they are end consumers.A large part of this retail segment is adopting for the composite scheme.The clear data to date is not available but will become clear in the months to come.The net cost to consumers will be less by 2.5% if the purchase their goods from composite dealers rather than large size retailers whose turnover exceeds 75 Laks.The price mentioned in the dealer invoice should be inclusive of composite GST and “Under Composite Scheme” should be mentioned in the Invoice. The composite tax, however, cannot be taken as an input credit by the buyer.
The changes in the textile sector based on announcements made on the 6th October 2017 by the GST Council
GST on MMF Filament yarn & MMF Spun yarn including filament sewing thread the GST has been reduced from 18% to 12% – Benefitting the spinning and power loom. The enhancement of the composite scheme for retailers from 75 Laks to 1 Crore of annual turnover
Easing of compliance burden for medium and small taxpayers
Zari Work from 18% to 5%
The above policies will put the textile sector on a strong wicket to take on the challenges from China with the threat of incoming exports and propel the export growth to take on countries like Bangladesh & Vietnam.
On the domestic front prices will gradually come down once the headwinds of implementation are digested in the system across the value chain as per the diagram above and we should brace for a well dressed India at lower prices than the previous regime.