Textile industries play a major role in the development of the Indian economy with respect to GDP, Export promotion, employment, etc. Textile industry is viewed 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 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, multi-stage, destination- based tax that will be imposed on every value addition. This paper is an analysis of GST and what the impact of GST (Goods and Services Tax) in textile sector of India.
GST referred as Goods and services tax is major taxation scheme developed for achieving economic growth and removing cascading effects of current 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 being considered as the biggest tax reforms in Indian economy since independence. With the introduction of GST reform in India, the perspective of indirect tax system has been completely 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 single tax umbrella. Before 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 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 and are generally spinning mill or a composite mill. In composite mill spinning, weaving and processing facilities are carried out under same roof. The decentralized sector is engaged majorly on the weaving activity, which makes it heavily dependent on the organized sector for their yarn sourcing. The unorganized sector comprises of Power loom segment, Handloom segment, Hosiery segment, Khadi and Carpet manufacturing segment all together they contribute a good percentage in Indian economy.
THE MODEL OF GST
A dual GST system is implemented in India as proposed by the Empowered Committee under which the GST is divided into two parts: Central Goods and Services Tax (CGST) 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 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 makes a significant headway covering way for an all-inclusive indirect tax reform in the country. It 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. In the present system, taxes are imposed separately on goods and services.
IMPACTS 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 is observed that GST has not only changed tax system, but it also has an impact on organization function 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 than 10 percent in export income. According to data the global exporters of readymade garment have been reduced by 40 percent after implementing GST which was worth 9110 crores in October 2010. On the basis of 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.
The GST has shown the both negative and positive impact over the ranges of national and multinational Indian brands. For many companies the GST rate has raised its rate by 5 percent due to which costing has been hoist. In Companies 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 negative impact on Vardhman textile and impacts are not only at the company’s profitability but has also affected the consumer’s purchasing power also.
In contrast, at the time of GST launch, ranges of retailers are highly satisfied as they are no longer bounded with the ranges of taxes. Moreover, they were happy that the easy access in the tax system has been seen while dealing with taxes. In case of companies like Hosur which is the leading textile manufacturing brand in the Tamil Nadu were highly satisfied with the launching of GST in the nation. As per the views of LKM Adhi, the former president of Hosur industries is very pleased to have this new tax system into the nation. 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 that could help the retail segment as well as the retailers to enhance. In addition to this, there would be no relief and reductions provided to the textile manufacturer’s post-GST as there were in VAT and Excise.
There has been a sense of major relief in textile industry with the revision in tax rate of the job work on all related items. But there is no reduction in the apparel segment which is a negative impact that would result in huge problem to some micro industries of apparels. On the whole, GST implementation would benefit the economy in refining the cost and competition in global market. Additionally, it also hints that the consumer would get final product at reasonable cost and the business would enjoy maximum profit returns. The introduction of GST ensures complete regulatory system for the businessmen and benefits the industry in the long term by making the tax payers registered.
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 area. In overall, the GST in textile industry is resulting in competitiveness and sustainable growth opportunities in the domestic as well as foreign markets.
A role of textile industry in Indian economy: Divya P Solanki Assistant Professor, Mirambika College of Management, Rajkot, Gujarat, India; September 2017
Export performance of Indian Textile Industry in the Post Multi Fibre Agreement Regime: Greeshma Manoj; 2014
Implications of Goods and Services Tax (GST) for Indian Textiles Sector: Ministry of Textiles, Government of India
An Impact of good & Service Tax on Indian textile industry: Tanushree Gupta Department of management, APS Rewa University Rewa, India
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