Besides industry sources said that investments worth Rs 1,00,000 crore will be hit if GST on the raw materials used to manufacture synthetic man-made fibre continues at 18 per cent, even as the rate for cotton has been fixed at 5 per cent with exemptions provided for raw jute and silk. The recent meeting of the GST Council reduced the tax on final products from 12 per cent to five per cent but maintained the tax on the raw material to 18 per cent. Discouraging Investments? This has aggravated the inverted duty structure, and prolonged the duration of getting the Input Tax Credit (ITC) from the government. This could block working capital of companies, something that is worrisome as this could lead to thinning of investments and even workforce. In synthetic textile, chemicals like purified terephthalic acid (PTA) and mono-ethylene glycol (MEG), derived from petroleum, are the basic raw materials. These are used to make synthetic chips from which different yarns are made. Finally, these yarns are used to make fabric and then apparels, saree, dress material or other final products. After the recent changes during the 56th GST council meeting, raw materials like PTA, MEG and synthetic chips have 18 per cent GST, while the value-added products then onwards carry five per cent GST. This has worsened inverted duty structure. Industry stakeholders from various textile associations as well as trade and industry bodies from across India have expressed concerns about it. They fear that this would result in a significant accumulation of ITC with the government and will affect the industry's liquidity, competitiveness and upcoming investments. Industry sources told The Secretariat that investment worth Rs 24,000 crore is expected in the polyester yarn segment in the country in the next five years. Similarly, investment over Rs. 78,000 crore is required to manufacture various raw materials like PTA and MEG. “However, the inverted duty structure will ensure that ITC of the manufacturers will lie with the government for quite a long period, squeezing the liquidity out of the industry. For manufacturers, this would not make a profitable proposition,” said Ashish Gujarati, vice president of Southern Gujarat Chamber of Commerce and Industry (SGCCI). Surat, in south Gujarat, is a major hub for manufacturing and trading of synthetic textiles in the country. At a meeting last week with Sanjay Agarwal, Chairman of the Central Board of Indirect Taxes and Customs, in New Delhi, SGCCI proposed that 18 per cent GST be reduced to 5 per cent on textile raw materials like paraxylene, caprolactam, MEG, PTA, dissolving grade wood pulp, nylon, and polyester chips, which would eliminate the inverted duty structure in the synthetic textile value chain. 18 PC GST On Textile Machinery Moreover, textile machinery also carries 18 per cent GST. For spinners (using yarns to manufacture fabric), this means that they will not get ITC during the lifetime of the capital goods they have bought, something that would discourage them to expand within India. “This means that India will no longer remain globally competitive in man-made fabrics. All spinners operating in India will suffer a major loss. With five per cent GST on final products, ITC to the tune of Rs nine per kg will lie with the government. However, the operating margins are even narrower. Spinners will never be able to recover the ITC from the government,” said Gujarati. Industry Demand Industry representatives have also suggested that the government increases the threshold for 18 per cent GST on apparels from Rs 2,500 to at least Rs 10,000. The 56th GST council meeting fixed five per cent GST for clothes costing less than Rs 2,500, while costlier garments now carry 18 per cent GST. Industry people argue that this upper price limit is too low for spending on clothes for marriages, other ceremonies and festivals. “Which garment for festivals or ceremonies cost less than 2,500?” asked Rahul Mehta, Chief Mentor of The Clothing Manufacturers Association of India (CMAI). His argument is that woollen goods are an essential commodity for people in north India and east India. These goods are priced above Rs 2,500. Also, Indian ethnic wear, the ghaghra-choli, typically worn during Navratri, Durga Puja or Diwali, cost much more. With upcoming marriage seasons, he feels that higher taxation will make these goods unnecessarily costlier for buyers, especially from middle class, for whom this one-time expense has tremendous emotional connect, making a case to reduce GST from 18 per cent to five per cent.
