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Please note! Imported garments to become 5-6% cheaper with GST

GST subsumes 4% SAD on imports

Dilip Kumar Jha  |  Mumbai 

GST: Imported garments to become 5-6% cheaper

Imports are likely to remain 5-6 per cent cheaper than locally made apparel, despite the providing input credits to the textile industr.

Apparel imports are subject to a countervailing duty (CVD) of 6 per cent on cotton and 12.5 per cent on polyester, which importers receive as a central value-added tax credit. The is optional at a flat 2 per cent if the importer does not claim a set-off against input costs. The government has provided a 40 per cent abatement on this optional flat duty, which works out to 0.8 per cent. Thus, the total applicable tax is 1.2 per cent for importers who do not claim the set-off. This apart, importers pay a 4 per cent (SAD) without any duty protection, which after considering cesses, works out to over 5 per cent.

“The government had levied this duty as protection for domestic players. With the GST, this duty protection will be removed and imported garments will be 5-6 per cent cheaper. The government has fixed 5 per cent as the rate on all textile products and apparel,” said Rahul Mehta, president, Clothing Manufacturers Association of India.

The textile industry fears an increase in imports from Bangladesh and China, where the cost of manufacturing is lower due to cheaper labour. “The subsumes all taxes, including protections. Garment imports will become cheaper due to removal of the SAD,” said an official from the Cotton Export Promotion Council. The ministry has set an export target of $45 billion for FY18, marginally lower than the $48 billion set for FY17.

The government plans to present a new policy by September. It is also organising India 2017, a seminar to bring global buyers under one roof, between June 30 and July 2 in Gandhinagar. While 61 countries have booked pavilions, 1,900 stalls are expected to be booked by state governments and industry players.

“Our aim is to increase exports and create a competitive environment. We would like states to take such initiatives to help the industry showcase its products directly,” said Anant Kumar Singh, secretary in the ministry. Singh said his ministry had done some work on the new policy, which would focus on India’s competitiveness in the world market.

Effective levies on imported garments

Before  
 
* Countervailing duty include duty on cotton 6% and polyester 12.5% with Cenvat credit
* Optional duty of 2% with abatement of 40% on it (i.e. 0.80%) means effective duty of 1.2% without Cenvat credit
* 4% of special additional duty, which along with cess, educational and others wok out to Rs 5.5%. 
* Thus, duty protection of 5.5% from cheap import

After  

* All duties subsumed in 5% of the for both domestic manufacturers and importers
* No protection, as both domestic manufacturers and importers would require to pay same duty

First Published: Wed, June 14 2017. 01:42 IST
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