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TEXTILE AND APPARELTEXTILE AND APPARELTEXTILE AND APPARELTEXTILE AND APPAREL
GST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSIS
BY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & CO.
35A Raja35A Raja35A Raja35A Raja BasantBasantBasantBasant Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 700029
9830112891, 033 241977369830112891, 033 241977369830112891, 033 241977369830112891, 033 24197736
www.bharatds.comwww.bharatds.comwww.bharatds.comwww.bharatds.com
shwetabsarawgee@gmail.comshwetabsarawgee@gmail.comshwetabsarawgee@gmail.comshwetabsarawgee@gmail.com
INDUSTRY
OVERVIEW
Composition is primarily SSI and unorganized sector
Huge Employment Generation
Large Contributor to forex earnings ie Exports
Low Indirect Tax Incidence
Integrated Units as well as stand alone Looms
High Price Sensitivity
FEATURES
BHARAT D SARAWGEE & CO.
VALUE CHAIN
FIBRE
PRD
PRODUCT
SPINNING WEAVING FINISHING
APPAREL
MANUF
FINISHING
FIBRE FABRICYARN APPAREL
BHARAT D SARAWGEE & CO.
PRODUCT PROFILE
NATURAL
FIBRES
MAN MADE FIBRES (MMF)
FIBRE YARN FABRIC APPAREL
REST OF THE WORLD
Natural Fibres MMF
INDIA
Natural Fibres MMF
BHARAT D SARAWGEE & CO.
GST- LEGAL FRAMEWORK
SGST• VAT
• Entry Tax
• Purchase Tax
• Octroi
• Luxury Tax
CGST
• ED
• Service Tax
IGST
• CVD
• SAD
• CST
Dual Model GST
CGST for Central Taxes
SGST for State Taxes
Cross Credit not allowed
IGST for Interstate and Import
Can be setoff against CGST and
SGST
Destination Based Tax
Consuming state will collect Tax
BHARAT D SARAWGEE & CO.
PROPOSED GST RATES
Particulars Rates
Exempted Goods and Services Nil
Precious Metal 2%-6%
Merit Goods 12%
General Rate 17%-18%
De Merit Goods 40%
The above rates are total of SGST and CGST
Only One CGST rate, SGST rate may vary within a small band
BHARAT D SARAWGEE & CO.
CURRENT INDIRECT TAX STRUCTURE
Lack of Fibre Neutrality- Duty differentiation basis Fibre Category
Variation in tax rates basis Integration- Discouragement of Integarted plants with higher
Duties
SSI exemption availed by 80% of the Industry
Classification Dispute- Saree Fabric or Apparel?
Nil rate w/o CENVAT is mostly adopted by the players in the Natural Fibre segment
Blocked Input taxes pushed to production
Duty Drawback schemes in Exports
EXISTING INDIRECT TAXATION- FEATURES
BHARAT D SARAWGEE & CO.
CURRENT TAX SCENARIO- EXCISE DUTY
TYPE FIBRE YARN FABRIC Ready made Garments (RMG)
NATURAL
FIBRES
0% without
CENVAT and
6% with
CENVAT
0% without CENVAT
and 6% with
CENVAT
0% without CENVAT
and 6% with
CENVAT
2% w/o CENVAT and 12.5% with CENVAT –
items with MRP>=Rs 1000 sold under brand
name
OR
0% w/o CENVAT and 6% with CENVAT
MMF 12% with
CENVAT
12% with CENVAT 12% with CENVAT 2% w/o CENVAT and 12.5% with CENVAT –
items with MRP>=Rs 1000 sold under brand
name
OR
0% w/o CENVAT and 12.5% with CENVAT
480 companies rated by ICRA in spinning and weaving industry of over 57000 crore turnover, the excise incidence is
only 1% as the chain is mostly cotton based.
Source- ICRA
BHARAT D SARAWGEE & CO.
CURRENT TAX SCENARIO- VAT
FIBRE YARN FABRIC Ready made
Garments (RMG)
NATURAL
FIBRES
0% -6% 0% -6% 0% -6% 4% -6%
MMF 4% -8% 4% -8% 4% -8% 4% -8%
BHARAT D SARAWGEE & CO.
CURRENT TAX RATES- PRODUCT WISE
State and central Taxes Combined
Textile CategoriesTextile CategoriesTextile CategoriesTextile Categories RNR (%)RNR (%)RNR (%)RNR (%)
Khadi, cotton textiles (handlooms) 4.04.04.04.0
Cotton textiles 7.1
Woollen textiles 9.3
Silk textiles 9.6
Art silk, synthetic fibre textiles 10.2
Jute, hemp, mesta textiles 9.0
Carpet weaving 5.6
Readymade garments* 10.5
Miscellaneous textile products 12.0
All SegmentsAll SegmentsAll SegmentsAll Segments 9.39.39.39.3
• IMPACT ANALYSIS
IMPACT ANALYSIS
NATURAL FIBRES
NATURAL FIBRES
Textile Input Goods
Non Textile Input Goods
Capital Inputs
Input Services
VAT/CST
ED, VAT/CST /BCD,CVD,SAD
ED,VAT/CST
CGST, SGST/IGST
CGST, SGST/IGST
CGST,SGST/ IGST/BCD,IGST
ST
CGST, SGST/IGST
FIBRE
Mills/Powerlooms
Current Taxes
GST Regime
Credittable in GST
GST ON VALUE CHAIN OF NATURAL (COTTON) FIBRE
Textile Input Goods
Non Textile Input Goods
Capital Inputs
Input Services
VAT/CST
CGST, SGST/IGST
ED,VAT/CST
CGST, SGST/IGST
ED, VAT/CST /BCD,CVD,SAD
CGST,SGST/ IGST/BCD,IGST
CGST, SGST/IGST
ST
ED,VAT/CST
CGST, SGST/IGST
Apparel Factory
Blocked Credit -Existing
YARNFABRIC
Assumed that all the players are on optional route of nil excise duty
APPARELSTEXTILE
ITEMS
BHARAT D SARAWGEE & CO.
Textiles even if placed in merit Goods, the proposed rate is high compared to 4%-
6% RNR for Cotton Textiles
Blocking of Working Capital on account of payment of taxes
Market highly price sensitive- Higher GST will increase price -detrimental to
market share
Input taxes blocked will be passed on to the consumer
Removal of duty difference in Integrated Mills and Power looms -Promotion of
Process Integration and earning of economies of scale
Difficult to break Tax Net- Exemption limit is only Rs 10 lacs
IMPACT
BHARAT D SARAWGEE & CO.
Incentive to Modernisation- Cost of Input Capital Goods will be lowered to
the extent of input Credit
Compliance simplification- One Tax one law
Incentive to deal with GST compliant suppliers, as Input Credit not taken by
the non complied supplier will add to the cost
IMPACT
BHARAT D SARAWGEE & CO.
MAN MADE FIBRES
Fibre Neutrality in Textile Eco System- Similar duties for the industry with no
differentiation to Natural fibres
Level Playing Field- will be competitive with Cotton textiles in line with World
market scenario
Encouragement for production of MMF against Cotton
Huge Boost for increase in Export Market- Heavy demand for MMF
Import of Machinery will become cheaper as credit of IGST will be available
against earlier non utilization of CVD- incentives of Duty refund on Capital goods
available in Natural Fibres only
IMPACT
BHARAT D SARAWGEE & CO.
Export to be classified as Zero rated Supply
Input Credits on goods and services will be available as refund
Duty Drawback Scheme existing will become defunct
In case of Duty Drawback rates higher than input credit refund, profitability
will be impacted
Blockage of Working Capital for payment of taxes up front
IMPACT
BHARAT D SARAWGEE & CO.
Imported fabric in country will become competitive on account of Credit of
IGST against earlier non availment of CVD credit to importers
Export boost on account of total refund of input taxes
IMPACT
BHARAT D SARAWGEE & CO.
ED on MRP concept will be replaced by Transaction Value- subsidy
Blocking of Funds in Interstate Stock Transfer
Deletion of Entry tax from state list
Elimination of CST underrecoveries for traders
Elimination of state boundaries and paper work, leading to economic transportation and
reduction in cost.
Additional Monthly Returns
Complex Credit mechanism, every state to have three credit pools.
GENERAL IMPACT
BHARAT D SARAWGEE & CO.
Average RNR for Industry is approx is 9.3 with Ready made Garments being highest
18% Standard GST is very High for the sector , demotivation to Make in India strategy
12% GST for Merit Goods will also be higher compared to existing RNR
All the items in the value chain ie textile inputs and outputs to carry similar rate for non
blocking of credits
Increased revenue for Government may be shared with the Industry in form of improved
subsidy scheme
Standard GST rate of 18% may Dis incentivize Exports
REPRESENTATION BY THE INDUSTRY
BHARAT D SARAWGEE & CO.
Difficult to bring Small Scale units and unorganized sector under Tax Net- (Around
5 lacs powerloom units and and knitting units in India under Unorganised sector)
Huge Compliance to be made by SSI units , not doing any compliance in current
scenario
Sharp Increase in price of Cotton Garments
CHALLENGES
BHARAT D SARAWGEE & CO.
THANK YOU

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GST impact analysis - Textile & Apparels

  • 1. TEXTILE AND APPARELTEXTILE AND APPARELTEXTILE AND APPARELTEXTILE AND APPAREL GST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSISGST IMPACT ANALYSIS BY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & COBY BHARAT D SARAWGEE & CO. 35A Raja35A Raja35A Raja35A Raja BasantBasantBasantBasant Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 700029Roy Road, Kolkata 700029 9830112891, 033 241977369830112891, 033 241977369830112891, 033 241977369830112891, 033 24197736 www.bharatds.comwww.bharatds.comwww.bharatds.comwww.bharatds.com shwetabsarawgee@gmail.comshwetabsarawgee@gmail.comshwetabsarawgee@gmail.comshwetabsarawgee@gmail.com
  • 3. Composition is primarily SSI and unorganized sector Huge Employment Generation Large Contributor to forex earnings ie Exports Low Indirect Tax Incidence Integrated Units as well as stand alone Looms High Price Sensitivity FEATURES BHARAT D SARAWGEE & CO.
  • 4. VALUE CHAIN FIBRE PRD PRODUCT SPINNING WEAVING FINISHING APPAREL MANUF FINISHING FIBRE FABRICYARN APPAREL BHARAT D SARAWGEE & CO.
  • 5. PRODUCT PROFILE NATURAL FIBRES MAN MADE FIBRES (MMF) FIBRE YARN FABRIC APPAREL REST OF THE WORLD Natural Fibres MMF INDIA Natural Fibres MMF BHARAT D SARAWGEE & CO.
  • 7. SGST• VAT • Entry Tax • Purchase Tax • Octroi • Luxury Tax CGST • ED • Service Tax IGST • CVD • SAD • CST Dual Model GST CGST for Central Taxes SGST for State Taxes Cross Credit not allowed IGST for Interstate and Import Can be setoff against CGST and SGST Destination Based Tax Consuming state will collect Tax BHARAT D SARAWGEE & CO.
  • 8. PROPOSED GST RATES Particulars Rates Exempted Goods and Services Nil Precious Metal 2%-6% Merit Goods 12% General Rate 17%-18% De Merit Goods 40% The above rates are total of SGST and CGST Only One CGST rate, SGST rate may vary within a small band BHARAT D SARAWGEE & CO.
  • 10. Lack of Fibre Neutrality- Duty differentiation basis Fibre Category Variation in tax rates basis Integration- Discouragement of Integarted plants with higher Duties SSI exemption availed by 80% of the Industry Classification Dispute- Saree Fabric or Apparel? Nil rate w/o CENVAT is mostly adopted by the players in the Natural Fibre segment Blocked Input taxes pushed to production Duty Drawback schemes in Exports EXISTING INDIRECT TAXATION- FEATURES BHARAT D SARAWGEE & CO.
  • 11. CURRENT TAX SCENARIO- EXCISE DUTY TYPE FIBRE YARN FABRIC Ready made Garments (RMG) NATURAL FIBRES 0% without CENVAT and 6% with CENVAT 0% without CENVAT and 6% with CENVAT 0% without CENVAT and 6% with CENVAT 2% w/o CENVAT and 12.5% with CENVAT – items with MRP>=Rs 1000 sold under brand name OR 0% w/o CENVAT and 6% with CENVAT MMF 12% with CENVAT 12% with CENVAT 12% with CENVAT 2% w/o CENVAT and 12.5% with CENVAT – items with MRP>=Rs 1000 sold under brand name OR 0% w/o CENVAT and 12.5% with CENVAT 480 companies rated by ICRA in spinning and weaving industry of over 57000 crore turnover, the excise incidence is only 1% as the chain is mostly cotton based. Source- ICRA BHARAT D SARAWGEE & CO.
  • 12. CURRENT TAX SCENARIO- VAT FIBRE YARN FABRIC Ready made Garments (RMG) NATURAL FIBRES 0% -6% 0% -6% 0% -6% 4% -6% MMF 4% -8% 4% -8% 4% -8% 4% -8% BHARAT D SARAWGEE & CO.
  • 13. CURRENT TAX RATES- PRODUCT WISE State and central Taxes Combined Textile CategoriesTextile CategoriesTextile CategoriesTextile Categories RNR (%)RNR (%)RNR (%)RNR (%) Khadi, cotton textiles (handlooms) 4.04.04.04.0 Cotton textiles 7.1 Woollen textiles 9.3 Silk textiles 9.6 Art silk, synthetic fibre textiles 10.2 Jute, hemp, mesta textiles 9.0 Carpet weaving 5.6 Readymade garments* 10.5 Miscellaneous textile products 12.0 All SegmentsAll SegmentsAll SegmentsAll Segments 9.39.39.39.3
  • 16. Textile Input Goods Non Textile Input Goods Capital Inputs Input Services VAT/CST ED, VAT/CST /BCD,CVD,SAD ED,VAT/CST CGST, SGST/IGST CGST, SGST/IGST CGST,SGST/ IGST/BCD,IGST ST CGST, SGST/IGST FIBRE Mills/Powerlooms Current Taxes GST Regime Credittable in GST GST ON VALUE CHAIN OF NATURAL (COTTON) FIBRE Textile Input Goods Non Textile Input Goods Capital Inputs Input Services VAT/CST CGST, SGST/IGST ED,VAT/CST CGST, SGST/IGST ED, VAT/CST /BCD,CVD,SAD CGST,SGST/ IGST/BCD,IGST CGST, SGST/IGST ST ED,VAT/CST CGST, SGST/IGST Apparel Factory Blocked Credit -Existing YARNFABRIC Assumed that all the players are on optional route of nil excise duty APPARELSTEXTILE ITEMS BHARAT D SARAWGEE & CO.
  • 17. Textiles even if placed in merit Goods, the proposed rate is high compared to 4%- 6% RNR for Cotton Textiles Blocking of Working Capital on account of payment of taxes Market highly price sensitive- Higher GST will increase price -detrimental to market share Input taxes blocked will be passed on to the consumer Removal of duty difference in Integrated Mills and Power looms -Promotion of Process Integration and earning of economies of scale Difficult to break Tax Net- Exemption limit is only Rs 10 lacs IMPACT BHARAT D SARAWGEE & CO.
  • 18. Incentive to Modernisation- Cost of Input Capital Goods will be lowered to the extent of input Credit Compliance simplification- One Tax one law Incentive to deal with GST compliant suppliers, as Input Credit not taken by the non complied supplier will add to the cost IMPACT BHARAT D SARAWGEE & CO.
  • 20. Fibre Neutrality in Textile Eco System- Similar duties for the industry with no differentiation to Natural fibres Level Playing Field- will be competitive with Cotton textiles in line with World market scenario Encouragement for production of MMF against Cotton Huge Boost for increase in Export Market- Heavy demand for MMF Import of Machinery will become cheaper as credit of IGST will be available against earlier non utilization of CVD- incentives of Duty refund on Capital goods available in Natural Fibres only IMPACT BHARAT D SARAWGEE & CO.
  • 21.
  • 22. Export to be classified as Zero rated Supply Input Credits on goods and services will be available as refund Duty Drawback Scheme existing will become defunct In case of Duty Drawback rates higher than input credit refund, profitability will be impacted Blockage of Working Capital for payment of taxes up front IMPACT BHARAT D SARAWGEE & CO.
  • 23. Imported fabric in country will become competitive on account of Credit of IGST against earlier non availment of CVD credit to importers Export boost on account of total refund of input taxes IMPACT BHARAT D SARAWGEE & CO.
  • 24. ED on MRP concept will be replaced by Transaction Value- subsidy Blocking of Funds in Interstate Stock Transfer Deletion of Entry tax from state list Elimination of CST underrecoveries for traders Elimination of state boundaries and paper work, leading to economic transportation and reduction in cost. Additional Monthly Returns Complex Credit mechanism, every state to have three credit pools. GENERAL IMPACT BHARAT D SARAWGEE & CO.
  • 25. Average RNR for Industry is approx is 9.3 with Ready made Garments being highest 18% Standard GST is very High for the sector , demotivation to Make in India strategy 12% GST for Merit Goods will also be higher compared to existing RNR All the items in the value chain ie textile inputs and outputs to carry similar rate for non blocking of credits Increased revenue for Government may be shared with the Industry in form of improved subsidy scheme Standard GST rate of 18% may Dis incentivize Exports REPRESENTATION BY THE INDUSTRY BHARAT D SARAWGEE & CO.
  • 26. Difficult to bring Small Scale units and unorganized sector under Tax Net- (Around 5 lacs powerloom units and and knitting units in India under Unorganised sector) Huge Compliance to be made by SSI units , not doing any compliance in current scenario Sharp Increase in price of Cotton Garments CHALLENGES BHARAT D SARAWGEE & CO.