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The $ 5.6-billion leather exports from the country will be seriously affected due to certain impediments following the implementation of the goods and services tax (GST) regime, if the issues are not addressed immediately, said Council for Leather Exports (CLE). The Council welcomed the new tax 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 GST 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 leather exports 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 GST are not addressed now, the exports may come down by 15-20 per cent," said Mukhtarul Amin, chairman of CLE.
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 GST refund has been obtained and the extension of deadline for GST returns will further delay the refunds, though the GST law provides for the immediate refund of IGST upon submission of monthly return in respect of IGST 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 GST 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 GST 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 IGST exemption for import of inputs, raw materials and capital goods used for making export products, as levy of IGST is affecting the liquidity of exporters and blunting their competitive edge.
Further, it has requested for a reduction of GST 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 VAT was only 5 per cent in the pre-GST 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 GST on job work has led to job losses of several job workers/cottage industries.
Another request is for reduction of GST on Common Effluent Treatment Plants (CETPs) from 18 per cent to 5 per cent. CETPs were earlier exempted from service tax charges. The CLE has also called for a reduction of GST 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 GST 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 GST. We have already submitted the required cost data to the drawback directorate.
The current situation is threatening to take away the business of Indian leather industry 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 GST issues, will be a huge loss to the leather industry 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 leather industry and achieve envisaged 10 per cent export growth," said the council officials.