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“Oversights and anomalies in GST”- Sanjay Jain

Oversights and anomalies in GST Sanjay Jain

 

Sanjay K Jain, Chairman NITRA and Vice Chairman CITI , while extending thankfulness towards Honourable Ministers, Arun Jaitley and Smriti Irani for having understood well and keeping the cotton value chain and garments (1000) under 5% GST slab. That will ensure, according to him, “That there is no inflation for the common man due to GST. It has been a very balanced GST announcement overall. GST would benefit the industry in terms of lower logistic costs, low lead times, make pan India selling easier by removal of Forms needed, reduce administrative hassles by creating a single tax window, reduce costs by allowing taxes in all expenses to be adjusted etc. Overall the industry is very happy with the GST rates and so are the consumers.

However, he says, “There are a few oversights and anomalies which we hope will get corrected in due course”. The anomalies are as:

Oversights and anomalies in GST

 

• Textiles is a very fragmented and unorganised industry. Mostly manufacturers just do a single process and hence a lot of job working is involved. Pre GST it was recognised as a manufacturing acitiity and exempted from service tax. However such exemption is missing in the current GST exemptions for services. This means it would have a 18% GST rate which would make the job work segments and their principals uncompetitive against large composite mills who will not have this impact due to inhouse production. We have represented to the Government with all facts and are hopeful that this shall get suitably modified in the next GST Council meeting

• Synthetic chain is impacted due to the inverse rate structure – fibre and yarn enjoy 18% GST while fabric & garments have 5%. This problem is further accentuated due to disallowance of refund of excess GST on input. Further this will also lead to flood of imports of fabric as GST on imports will be 5%, while effective tax incidence on domestic fabric will be close to 10%

• This GST structure will lead to more cotton consumption, due to duty variance of 13%. We have requested to reconsider and reduce synthetic yarn duty to 12% to make it more equitable or atleast allow refund of excess credit if any.

• Another indirect fallout from GST, is the big threat of imports of fabric and garments from China, Bangladesh and Sri Lanka. Earlier imports had a 12.5% CVD which wasn’t adjustable. Now they would attract 5% GST which is adjustable against subsequent sales. Hence post GST the industry will be relatively disadvantaged by 12.5% vis a vis its peers abroad. This could create a very big issue as 12.5% in textiles is more than the net profit of most manufacturers. We shall need to approach the Commerce and Textile Ministry to work out some solution to save the industry from this impending avalanche by increasing import customs duty on textile products.

He concludes, “We hope the above anomalies are corrected soon, so our Industry can focus on accelerated growth as the uncertainty of GST is over. However, if these small but high impact irritants are not removed – we could see a big hit in the industry.”

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