At a time when sections of the textile industry were demanding correction of inverted duty structure to ease cash flow, the recent notification issued by the Central Board of Indirect Taxes and Customs (CBIC) has not augured well with the industry.
RAI believes that a far more beneficial and reasonable solution is to make the Entire Value Chain subject to a flat 5 percent GST rate. This will not only resolve the Inverted Duty Structure anomaly but also give a fillip to the industry.
Union finance minister Nirmala Sitharaman on during her recent visit to Jammu and Kashmir said the recent government notification on uniform Goods and Services Tax (GST) at 12 percent for the textile and apparel sector was aimed at correcting the inverted duty structure that was leading to accumulation of input tax credit by companies. She did not subscribe to the industry’s fears that this would lead to higher prices of finished products.
“Every time adjustments in rates do not lead to the price increase for customers. A higher rate on inputs was leading to higher refunds to taxpayers and needed correction. Correction of the inverted duty structure was decided at the GST Council,” she said at a media briefing during her two-day visit to Jammu & Kashmir.
“Inverted duty structure was a problem for the MMF sector. The GST rates currently are 18 percent for fibre,12 percent for yarn and 5 percent for fabrics. The recent notification issued as a follow-up to the recommendations of the 45th GST Council meeting prescribing a uniform rate of 12 percent across the MMF chain has reportedly left some sections of the sector ‘distressed and disappointed’.
The MSME sector which is largely focused on fabric production would undoubtedly get impacted. While the rate hike for them at 7 percent is substantial, the new rates will ensure no blockade of credit. While this was not unexpected, the MSME sector’s demand for maintaining a status quo or a uniform 5 percent rate is perhaps not justified. The new rate is effective from January 1, 2022, and gives the sector sufficient time to prepare themselves,” said Najib Shah, former CBIC chairman.