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Leather exports may dip by 20% if GST-related issues go unheeded: CLE

Industry would require an additional working capital of Rs 3,200 cr under the new tax regime this year

Gireesh Babu  |  Chennai 

leather industry, leather exports, leather

The $ 5.6-billion from the country will be seriously affected due to certain impediments following the implementation of the goods and services (GST) regime, if the issues are not addressed immediately, said Council for (CLE). The Council welcomed the new regime and said that this would be beneficial for the country in the long term, though there are issues to be solved in the short term.

The industry is facing a financial burden and significant outflow of capital on account of levy of higher rates on major segments of the manufacturing chain and requirement of upfront payment of GST, refunds for which can be claimed later. The industry would require an additional working capital of Rs 3,200 crore under the new regime this year.

Almost 80 per cent of the industry players are in the small and medium segment and banks are also reluctant to extend loans to them, they alleged.

"The from India is at around $6 billion and we are facing severe competition from countries like Bangladesh where the industry has several incentives. If the issues related to are not addressed now, the exports may come down by 15-20 per cent," said Mukhtarul Amin, chairman of

The full rate of duty drawback is available only for three months from July to September in 2017, after which it is restricted only to the customs portion of duties.

The government has extended the deadline for filing of GSTR-3 (monthly returns) for July 2017 up to November 10 2017. As of now, no refund has been obtained and the extension of deadline for returns will further delay the refunds, though the law provides for the immediate refund of upon submission of monthly return in respect of paid/rebate route for exports and for 90 per cent refund within seven working days from the date of submission of complete refund application with respect to zero-rated exports through bond/LUT route, he said.

Upfront payment of and delayed refunds not only increases the transaction cost of the exporters, but it also threatens to wipe out the small and medium exporters who do not have the resources for generating significant money for payment.

In order to achieve positive growth in exports, the industry needs some amount of handholding from the government's side. The council requested the government for for import of inputs, raw materials and capital goods used for making export products, as levy of is affecting the liquidity of exporters and blunting their competitive edge.

Further, it has requested for a reduction of for finished leather and composition leather from 12 per cent to 5 per cent as finished leather is the essential raw material required for the manufacture of value-added products. These materials were not subject to central excise and was only 5 per cent in the pre-era.

It has also requested a reduction of job work for the manufacture of leather products and footwear from 18 per cent to 5 per cent, as done for the textile sector. The 18 per cent on job work has led to job losses of several job workers/cottage industries.

Another request is for reduction of on Common Effluent Treatment Plants (CETPs) from 18 per cent to 5 per cent. CETPs were earlier exempted from service charges. The has also called for a reduction of on leather goods, gloves and garments from 28 per cent to 12 per cent, so as to promote FDIs in this sector.

It has welcomed reduction of on sale of duty credit scrips from 12 per cent to 5 per cent.

The council had requested the Department of Commerce to recommend the implementation of Rebate of State Levies (ROSL) scheme for the leather sector, so as to compensate state levies not covered under We have already submitted the required cost data to the drawback directorate.

The current situation is threatening to take away the business of Indian to competitors like Bangladesh, Vietnam and Indonesia. The industry is already facing worldwide recession and fresh challenge in the form of the emergence of strong production centres in Eastern Europe. Loss of competitiveness due to issues, will be a huge loss to the which currently has an annual export turnover of $5.6 billion and employment of about 4.5 million, with predominant women employment.

"Hence, there is an urgent need for immediate government intervention to protect the interests of the and achieve envisaged 10 per cent export growth," said the council officials.


First Published: Tue, September 26 2017. 20:09 IST