The Finance Ministry of India on Monday said the uniform GST rate of 12 per cent on manmade fibre(MMF) yarns, MMF fabrics and apparel will reduce the reduce the compliance burden of the industry, providing a clarity and settling for once the chronic issues arising from the inverted tax structure.
The changed rates will come into effect from 1st January, 2022. It will help unlock the potential of the MMF segment and emerge as a big job provider in the country, the press note released by the government said. The GST on MMF, MMF Yarns and MMF Fabrics were 18 per cent, 12 per cent and 5 per cent respectively.
“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 press note said, adding, “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.”
The statement further added that though there was an option of claiming the untilised Input Tax Credit(ITC) as a refund, there were attendant complications and ensuing 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,” the note further added.
The statement said the uniform imposition of 12 per cent GST rates will be benefitting and saving a lot of working capital. Besides, the uniformity in GST rates on job work related to dying and printing services will benefit the industry to absorb and recover unutilised ITC.
According to the released statement, a significant portion of MMF products (output) is expected to be exported, which 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.
In addition to this, uniform 12% GST will help the industry having huge portion of piled up opening ITC by enabling them to encash the same progressively.
Highlighting that the differential rates for garment creates problem in compliance of tax regime, it said MMF garment cannot be identified easily and cannot be taxed differently, hence there is need for uniform rate as it would make it simple and since there is so much high potential of value addition in garment segment would absorb the increase in rate in value addition.
