GST Council may reconsider plan to hike rate on textiles

GST Council may reconsider plan to hike rate on textiles

Even though the Goods and Services Tax (GST) Council had to drop a plan to hike the GST rates for most textile products in the man-made fibre (MMF) value chain, the government may revisit it soon.

India

Even though the Goods and Services Tax (GST) Council had to drop a plan to hike the GST rates for most textile products in the man-made fibre (MMF) value chain, the government may revisit it soon.

The decision was to hike the GST rates for most textile products in the man-made fibre (MMF) value chain from 5% to 12% in late December 2021 amid protests from the industry. The rate hike was to take effect from January 1, 2022, but the decision was rolled back a day before amid protests from the industry.

Finance minister Nirmala Sitharaman recently said that correcting the inverted duty structure in the textiles value chain is essential to attract investment in the sector. She said that, the correction is required for the production-linked incentive scheme for the sector. Or else, investments would not come into certain areas.

The GST Council’s decision to alter the rate structure for textile products was aimed at resolving the long-unresolved issue of inverted duty structure in the synthetic textile segment. Manufacturers of man-made fibres have long suffered from the duty disparity with the natural fibre (manly cotton) segment.

At present, the tax rate on manmade fibre, yarn and fabrics is 18%, 12% and 5%, respectively. 

Inverted duty structure arises when the tax on inputs and intermediates are higher than that on finished products. India’s competitiveness in the global textiles market, is seen to be blunted, owing to the inverted tax system.

Source: Financial Express

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