Role of GST in facilitating chances in the textile industry of India

Role of GST in facilitating changes in the Textile Industry of India

PREETY GUPTA

Abstract

Textile industry plays a major role in the development of the Indian economy with respect to GDP, Export promotion, employment, etc. Textile industry is viewed as the second largest employment generating sector after agriculture Industry, for both unskilled as well as skilled people. In terms of India’s total annual exports, the textile industry contributes 10% which is indeed a significant contribution to exhibit importance of this industry for the economic growth and development of the Country. Earlier, there were many direct and indirect tax systems in the textile sector; along with corruption therefore, to overcome these the Central Government made one tax system i.e. Goods and Services Tax (GST). It is a comprehensive indirect, multistage, destination- based tax that has been imposed on every value addition. This paper is an analysis of GST and the impact of GST in textile sector of India.

Introduction

GST is referred as Goods and Services Tax which is major taxation scheme developed for achieving economic growth and removing the cascading effects of the earlier tax structure. It was introduced and passed as the 101st amendment in the Indian Constitution in 2016 and was implemented from 1st July 2017. GST is considered as the biggest tax reforms in the Indian economy since independence. With the introduction of GST reforms in India, the perspective of indirect tax system has been comIntern at Textile Value Chain

pletely changed as it has brought majority of the taxes on goods and services charges on traders, manufactures and sale and consumption of goods and services into a single tax umbrella. Before the introduction of the GST, taxes were imposed individually on goods and services which were consolidated under the GST regime on a uniform rate of tax making it fixed for both goods and services. The GST, tax system has been streamlined to achieve the objective of “one nation one tax” and to reduce the burden of tax payers, especially traders, manufactures and distributors from paying higher management costs. Using a tax credit mechanism, GST is collected at every stage of sale or purchase which is paid finally at the point of consumption. The main purpose of GST is to provide transparency and ease to users and support to the growth of the Indian economy.

There are two divisions in textile industry: the organized mill sector and the unorganized decentralized sector. Mills are generally represented as organised sector of the textile industry with either a spinning mill or a composite mill. In composite mill, spinning, weaving and processing facilities are carried out under the same roof. The decentralized sector is engaged majorly on the weaving activity, which makes it heavily dependent on the organized sector for their sourcing of yarn. The unorganized sector comprises of Powerloom segment, Handloom segment, Hosiery segment, Khadi and Carpet manufacturing segment; all together they contribute a good percentage in the Indian economy. The Model of GST

A dual GST system was implemented in India; as proposed by the Empowered Committee under which, the GST is divided into two parts: Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). The Goods and Services Tax (GST) is said to replace all indirect taxes imposed on goods and services by the Government, both by Central and States. The GST combines of all State economies and is one of the biggest taxation reforms to take place in India. The GST made a significant headway covering way for an all-inclusive indirect tax reform in the country. It is an indirect tax that brings most of the taxes imposed on majority of goods and services, on manufacture, sale and consumption of goods and services, under a single domain at the National level.

Impact of GST

The implementation of Goods and Services Tax in India has affected various industries and has also indirectly affected daily lives of public at large scale. It was observed that GST has not only changed the tax system; but it also has an impact on organizational functions such as commercials, finance, product pricing, contracts and information technology. India is able to hold 22 percent share in the textile industry out of which 43 percent share is in the apparel market. Textile industry is also able to enjoy various tax relief, favours and benefits under the indirect tax. Out of total exports, the textile industry contributes more

COVER STORY ROLE OF GST than 10 percent of income from exports. According to data, the global exporters of readymade garments have been reduced by 40 percent after implementing GST which was worth Rs. 9110 crores in October 2010. According to October 2017 report, the export of garments is reduced by Rs. 5398 crores due to cut in the duty drawbacks after implementation of GST in India. Whereas, textile and clothing exports in 2018-2019 were worth Rs. 3590 crores and from April 2019 to March 2020 it was worth Rs. 3380 crores. Textile and clothing exports have dropped by 6% during the 2019-2020 financial year, with a major fall in March.

The GST has shown the both negative and positive impact over the range of National and Multinational brands in India. For many Companies, the GST rate has raised its rate by 5 percent due to which costing has been hoist. In Companies for example like Vardaman which is the leading brand of Indian Textile industry before GST, 6 piece of container were given at the rate of 330, however the rates after GST has hiked up to 336 per container. Thus, this raise in the pricing has created a negative impact on Vardhman Textiles. The impact is not only at the company’s profitability but has also affected the consumer’s purchasing power.

In contrast, at the time of launch of GST, ranges of retailers were highly satisfied as they were no longer bound with the range of taxes. Moreover, they were happy with the easy access in dealing with taxes. In case of Companies like Hosur, one of the leading textile manufacturing brand in Tamil Nadu, were highly satisfied with the launching of GST. As per the views of LKM Adhi, the Former President of Hosur industries was very pleased to have this new tax system. The taxation system became easier for them and the desired results were achieved within the firm. After the manufacturing process, in the supply chain there has been overall decline in the effect of tax gush and thus, have a positive impact on the cost of finished products for the customers. The decision of the Indian government to impose 5% GST on the garments valued less than Rs 1000 was expected to help the retail segment as well as the retailers to enhance their capital. In addition, there was no relief and reductions provided to the textile manufacturer’s post-GST as there were in VAT and Excise.

As per data there is an increase in GST collections, that has brought a great relief to both the Union and state governments. The goods and services tax (GST) collections, which represents the consumption of taxed goods and services, reached ₹1.05 trillion, an increase of 10% on a year-on-year basis, and the collection was the highest in the last eight months. The last time it had crossed ₹1 trillion was in February 2020.

According to M Govinda Rao who is an economist and a member of the 14 th Finance Commission “It is a right time to reform GST. As the tax collections have turned the corner, rationalizing the structure will now accelerate the recovery process. It is desirable to reduce the number of tax slabs into three. Also, building materials and passenger automobiles should ideally be removed from the ‘sin’ list which attracts a 28% tax”.

With the current widespread impact of the COVID-19, which has left no sectors unturned and is expected to decelerate the growth projection of the textile and apparel industry in India, which was once projected to grow at a CAGR of 12% to reach USD 220 billion (INR 16,637 billion) by 2025-26 (as per the data released by the Ministry of Textiles). Due the outbreak of the pandemic, it is expected that the domestic market has seen shrinking by around 28%30% to USD 61 billion (INR 4,163 billion) led by the decline in the sales for the current financial year ending 2020-2021.

Conclusion

In the development of Indian economy textile industry holds a major position as it generates employment to large population, promotes export and provides returns to the government in terms of tax. In this perspective, GST has been seen as a major refinement in Indian economy where indirect tax system has been changed dramatically. This tax reform has been considered by economists and scholars as it is a boosting factor for growth and development of Indian economy for a long term as it aims to unite all indirect taxes into one nation one tax. In overall, the GST in textile industry has resulted in competitiveness and sustainable growth opportunities in the domestic as well as foreign markets.

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