The uniform goods and services tax (GST) rate at 12 per cent on manmade fibers, yarn, fabrics and apparel has addressed the inverted tax structure in the manmade textile value chain. The changed rates will help the manmade fiber segment grow and emerge as a big job provider in the country. The textile and apparel industry had for long been demanding the removal of the inverted tax structure on the manmade fiber value chain.
GST on manmade fiber, manmade yarn and manmade fabrics was 18 per cent, 12 per cent and five per cent respectively. The taxation of inputs at higher rates than finished products created a build-up of credits and cascading costs. It further led to the accumulation of taxes at various stages of the manmade fiber value chain and blockage of crucial working capital for the industry. The inverted tax structure caused an effective increase in the rate of taxation of the sector. The world textile trade has been moving toward manmade fibers but India was not able to take advantage of the trend as its manmade fiber segment was throttled by the inverted tax regime.
The 12 per cent uniform GST rate will reduce the compliance burden of industry players. Since a significant portion of manmade fiber products is expected to be exported, it will lend a better scope for encashing the unutilised input tax credit.