The textile sector is a major contributor towards the growth of the Indian economy, pertaining to employment, GDP, export promotion, etc. Regarded as one of the oldest manufacturing industries in India, the garments industry is widely recognised for employing both skilled and unskilled people. The vast industry adds over 10 percent of the entire annual exports of India, and, the value is expected to increase under the Goods and Services Tax (GST) regime.
Under the Automatic Route, the Government of India allows 100% FDI in the textile sector. The industry has two segments, namely organised and unorganised. While the organised sector includes garment, spinning and apparel manufactured by using modern machinery and latest techniques, the unorganised sector consists of handloom, handicraft, small and medium scale mills.
In a meeting conducted by the GST council in August 2017, several positive and relaxing decisions were made for the garments industry. The council has mentioned rules regarding e-way bills and rates. Even the rate structure on job work of products manufactured in relation to textiles has been reduced to 5% from 18%.
This decline in pricing has directly inverted the supply rule, leading to an instant boost in demand. Experts believe that this fall in price will create a healthy environment for export both in the garments industry in Bengal and all over the country.
Garments Industry In Bengal: Impact Of Goods And Services Tax (GST)
Under the GST regime, the rate structure for clothes has been decided at 18% for man-made synthetic fibre and 5% for cotton fibre. Jute and silk have been totally exempted from this taxation. The GST rate structure on clothing is also decided on the basis of category. While apparels costing below Rs.1000 will attract a 5% GST, those which cross this mark will attract GST of 12%.
Despite some notable changes in the textile sector under the GST regime, the garments industry, as a whole has benefitted from the implementation of GST. GST has impacted the industry due to changes like-
- Low Manufacturing Costs
With the introduction of GST, various other taxes like entry tax, Octroi and luxury tax has subsumed. This has helped the manufacturers in reducing the production costs in the garments industry.
- Increase In The Export Of Garments
Several traders and manufacturers were not inclined towards export of garments during the pre-GST era. Due to the extensive cost of the delays and procedure made in the duty drawback process, many manufacturers disinclined from exporting their textile products. However, under the GST purview, the duty drawback system has lost its importance and input tax credit is given as refund.
- Input Tax Credit Allowed On Capital Goods
The import cost of procuring latest technologies for manufacturing textile products was earlier expensive since the excise duty paid was not allowed as input credit. Whereas under the GST regime, the input tax credit is available for every tax paid on capital goods.
By keeping the above impacts in mind, it can be said that the implementation of GST will help the garments industry. So what are you still here for? It’s time to approach a leading export hub in Kolkata!