Introduction
One of India’s oldest working industry divisions is the textile industry. It is single handedly responsible for providing employment and work to a huge number of workers. It has contributed significantly to our economy. Apart from that, the textile industry has also contributed largely to the world. The textile industry holds a 10% contribution in our annual exports. The number of exports in the textile industry is also growing annually. It is considered that the textile industry got its much needed boost thanks to the Goods and Service Tax (GST) regime. In this article, we will discuss the impact of GST on the textile industry
Pre-GST Era
To understand the huge impact that GST has made on the textile industry, we will also have to revisit the pre-GST era. It is important to understand how things worked before the GST came into the picture.
When it came to Service Tax , the textile industry had no such thing. All services related jobs in the textile industry were exempted from the service tax. Furthermore, the excise duty and VAT was only available for Yarn and branded garments.
Impact of the GST in the Present Era
The following positive effects have been seen ever since the textile industry came under the scrutiny of the GST:
1) Backup in Input Credit Chain
Before the GST regime, there was a huge gap in the input credit chain. The reason behind this gap was that the sector was largely dominated by the unorganised sector. If taxpayers acquire inputs from the unorganised sector, input tax credit won’t be allowed. Thanks to the GST, the gap in the input credit chain was observed. A new input credit chain is now reducing such a gap, this has tipped the game in the favour of the organised sector.
2) Manufacturing made Cost-Effective
In the pre-GST era, there used to exist many fringe taxes. The fringe taxes were entry tax, luxury tax, etc. The GST aims to do away with such taxes which would affect the manufacturing cost positively. The GST has brought a more uniform and simplified tax system, this came as a sigh of relief for manufacturers as unnecessary and complicated taxation used to increase their overall input cost.
3) Input Credit Allowed on Capital Goods
In the pre-GST era, the manufacturers had to pay huge amounts to procure state of the art technology for their textile production. The huge amounts were to be paid because of the excise duty. This excise duty was not allowed as input tax credit. In the post-GST era, the input tax credit is available. This has made it easier for manufacturers to obtain new technology.
4) Reduced Compliance Burden
Like it was mentioned earlier, the pre-GST era included several fringe & complicated modes of taxation. To further this problem, the complicated taxes needed to be taken care of through different agencies. This has changed after the introduction of the GST. The uniform and simplified mode of taxation has absorbed all the complicated taxes under the GST. This has reduced the overall burden on compliances.
5) Impact on Export
In the pre-GST era, major manufacturers and textile business persons were not keen on exporting their products. This was due to their production cost, the low demand by foreign business persons & the extensive process of paying duty.
Thanks to the input tax credit, the textile industry has now got the right boost to be more aggressive in the competitive export market. In the post-GST era, there has been a decent rise in textile imports, it is believed that the GST is responsible for the same. The high cost of manufacturing had also created a barrier on the imports and overall textile demand. Since, the GST has made the cost of production reduced than before, there has also been a higher demand. The low cost of production is seen in the final cost of the product.
6) Unregistered Persons Affected
The payment of GST is done under a new mechanism known as the RCM (Reverse Chain Mechanism). The RCM is a strict provision, and the payment under GST can only be one through that. If a business person does not comply they will not get the same privilege as the other legitimate business persons.
The aim is to eliminate any person who is not registered or does not comply. The presence of such actors had made the textile industry very corrupt and unorganised. It also caused the increased usage of black money in the textile sector. The RCM mechanism has thus made it very difficult for such actors to stay in business. Common problems of cheating, bribery, embezzlement, etc. will be gone for good under the new GST regime. The aim is to ensure that the textile industry becomes more trusted than earlier.
Conclusion
The Goods & Service Tax has created many doubts on the textile sector. Most of the people who were worried about the GST regime belonged to the unorganised sector of the textile industry. It is necessary to restore faith in the textile industry. The GST had a big role to play in it. There has been a positive impact in the overall working and machinery of the textile sector.
The boost that the organised sector has received due to the GST has made it very easy to receive better international attention. The growth in exports is unparalleled. There may have been certain drawbacks initially as many business persons took time to get comfortable with the new process and provisions, but it is safe to say that the GST is going to have a very positive impact in the long run. It has created hope for the textile industry as a global player in both international and domestic markets. This will lead to more jobs and employment.
Author: Niti Gupta
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