The GST Council revised the GST rate for job work (embroidery) in the textile sector from 18 percent to 5 percent in connection with apparel, shawl, and carpet manufacturing. This, in turn, is likely to facilitate a swift flow of processes throughout the textile value chain, enable job workers to claim input tax credit (previously, job workers were forced to pay tax on raw materials procured but couldn’t charge service tax, thus resulting in a cost hike of products manufactured by them), benefit domestic consumers, and strengthen the global competitiveness of India’s textile units.
In the past, as against 18 percent tax on man-made fibre (MMF) yarn, the corresponding rate for synthetic fabric was only 5 percent. Consequently, synthetic manufacturers resorted to MMF yarn imports to save costs. To address these concerns, the GST rate on yarn manufactured from man-made fibres (MMF) has been reduced from 18 percent to 12 percent to prevent price escalations and ease working capital requirements. Nonetheless, until the option to claim input tax credit is made available at the fabric manufacturing stage, the residual problems for synthetic yarn businesses will continue to linger on.
To ease the bottlenecks confronting textile exports, a series of measures were undertaken. Exporters have to pay a nominal GST rate of only 0.1 percent on the value of goods manufactured for export. Additionally, refund claims processing for exports undertaken in July and August would be initiated from the month of October 2017. The government plans to introduce e-wallets from April 2018 to improve exporters’ cash flows, too.