GST rates to be neutral for most textile segments: ICRA

The impact of the Goods and Services Tax (GST) is likely to be neutral to positive across segments in the textile industry compared to the current tax regime, ICRA said in a report.
As per the rating agency's estimates, the effective tax incidence on cotton and man-made fibre (MMF) or blended textiles under the existing tax regime is in the range of 5-7 per cent and 11-14 per cent, respectively.
Besides excise duty, this captures the impact of other multiple levies such as Value Added Tax (VAT), Central Sales Tax (CST) and entry tax or octroi, the report said.
Considering that the GST rates announced for these textile categories are more or less in line with the existing effective tax rates, ICRA does not envisage any impact on these product categories.

However, ICRA added that the rates announced are expected to be positive for wool or silk-based textiles, which will be taxed at a lower rate of 5 per cent compared to the prevailing tax of 8-10 per cent.
The rating firm, however, said fabric manufacturers, who operate under the composition scheme of taxation for which the Input Tax Credit (ITC) is not available will face challenges as the apparel manufactures will prefer to deal with GST-compliant fabric suppliers to avail ITC.
This will, hence, incentivise the fabric manufactures to operate under the purview of GST, it added.
Further, with the GST applied on cotton yarn as well, the incentive for fabric manufacturers to not avail of the ITC will also fall, since doing so would reduce the fabric- manufacturer's competitiveness, the report added.