SME Times News Bureau | 22 Nov, 2021
The
Government has notified uniform goods and services tax rate at 12 % on
MMF, MMF yarn, MMF fabrics and apparel that has addressed the inverted
tax structure in the MMF textile value chain, said a Textile Ministry release on Monday.
The changed rates will
come into effect from 1st January, 2022. This will help the MMF segment
grow and emerge as a big job provider in the country.
The
Textiles & Apparel (T&A) industry was having long pending
(first under sales tax then, under VAT and finally under GST regime)
demand for removal of inverted tax structure on manmade fibre (MMF)
value chain.
The GST on MMF, MMF Yarn and MMF Fabrics were 18%, 12% and
5% respectively. The taxation of inputs at higher rates than finished
products created build up of credits and cascading costs.
It further led
to accumulation of taxes at various stages of MMF value chain and
blockage of crucial working capital for the industry.
Though
there is a provision in GST law to claim the unutilised Input Tax
Credit (ITC) as a refund, but there were other complications and
resulted more compliance burden.
The inverted tax structure caused
effective increase in rate of taxation of the sector.
The world textiles
trade has been moving towards MMF but India was not able to take
advantage of the trend as its MMF segment was throttled by inverted tax
regime.
This 12% uniform GST rate is likely to contribute positively to the growth of the sector in the following ways:
i)
The uniform rate of 12% for entire value chain of MMF textiles sector
will be benefiting and save lot of working capital. It will reduce the
compliance burden of the industry players. This is a welcome step by the
Government with no inversion.
ii)
The uniformity of GST rates will be helpful to resolve the ITC residues
that accumulated due to the inverted tax structure earlier.
iii)
The uniformity in the GST rates shall 12% GST on job work related to
dying and printing services will benefit the industry to absorb and
recover unutilised ITC.
iv)The
significant portion of MMF products (output) is expected to be
exported, it will lend a better scope for encashing the untilised ITC.
Also since tax on input will get refunded, on output (export) which will
be zero rated, it would not add to cost and make exports competitive.
v)
Uniform 12% GST will help the industry having huge portion of piled up
opening ITC by enabling them to encash the same progressively
Differential
rates for garment creates problem in compliance of tax regime.
MMF
garment cannot be identified easily and cannot be taxed differently,
hence there is need for uniform rate.
Uniform rate makes it simple and
since there is so much high potential of value addition in garment
segment that the increase in rate is likely to be absorbed in value
addition.
It will provide clarity to the industry and settle, once and
for all, the issues caused by inverted tax structure, said the release.