Tirupur textile hub says 18% rate too high

18 per cent rate would affect the hosiery sector badly, says A C Eswaran

The textile hub of Tirupur in Tamil Nadu is worried about the 18 per cent Goods and Services Tax (GST) for different segments in the production chain. It says this will put pressure on working capital of job work units and that 20-30 per cent of these might have to close down. The Tirupur textile industry does business worth at least Rs 50,000 crore every year, export and domestic. And, employes over a million people.

Raja M Shanmugham, president, Tirupur Exporters Association, says at least 80 per cent of units in Tirupur are dependent on job work on the multiple stages of garment manufacture. The 18 per cent rate would now be applicable at each of these stages.

"The worry is the fate of the hundreds of micro and small units which were never under any tax purview so far," says T R Vijaya Kumar, managing director, CBC Fashions (Asia).

South India Hosiery Manufacturers Association president A C Eswaran added that an 18 per cent rate would affect the hosiery sector badly, as most of the work in the production chain are outsourced by the main manufacturing units to cottage units. Most of the latter have had no exposure to computers or paperwork related to tax. And, even assuming they're able to handle this, the biggest challenge is working capital. It will lead to units closing down, said Eswaran, who owns one of the largest brands, Viking. These units need to pay the tax on the 7th of next month, with GST take effect from July 1. Whereas, their collection from vendors ranges from 60 to 90 days. "It will be unbearable for these undertakings," said Shanmugham.

K Selvaraju, secretary-general, The Southern Indian Mills Association said the industry had hoped that textile job work would be exempted from service tax. This was essential, he said, with the decentralised and small scale of the industry, especially the powerloom, knitting, processing and garmenting sectors.

Also, he said, an 18 per cent GST rate on manmade fibre and synthetic yarn would have the problem of an inverted duty structure, as the fabric would attract only a five per cent rate. The Association says it expects 30-40 per cent stoppage of production in powerlooms and in garment knitting.