Impact of GST on Textile Industry

By Registrationwala

4th April 2017


GST is a comprehensive form of indirect tax. It is a taxation system that includes service tax, Entertainment tax, VAT and other forms of indirect tax. Goods and Services Tax will lead to higher than the current tax rate for the textile industry. These are industries includes sources of textiles and Natural fibers like cotton and wool. These are currently exempt from tax, would be taxed under GST. Despite this, the textile industry as a whole would benefit from the introduction of GST due to following changes-:

Break in input credit chain

There are many significant portions of the textile industry in India operates under the unorganized sector or composition scheme. It creates a gap in the flow of input tax credit.  Input tax credit is not allowed in case the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable the system for smoother input credit system, which would shift the balance towards the organized sector.

Reduction in manufacturing costs

GST also subsumes all the other fringe taxes like entry tax, luxury tax, Octroi etc. as it would help reduce costs for manufacturers in the textile industry.

Input credit allowed on capital goods

Import cost of procuring the latest technology for manufacturing textile goods is expensive as the excise duty paid is not allowed as input tax credit. But under GST, there will be  availability of input tax credit for the tax paid on capital goods.       

Export of textile products to get a boost

GST system will streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market. The same opinion is shared by the secretary of Indian Taxpreneurs Federation abbreviated as ITF.

Manufacturers and traders are not inclined towards exports due to the extensive procedure costs and delays made in the processing of duty drawback.

Under GST, the system of duty drawback will lose its significance. Input tax credit will be provided as a refund under GST instead of current duty drawback schemes. It would be a significant boost for the promotion in export of textile products.

Export promotion capital goods scheme is available for all the based on cotton textile exporters. Under this scheme, exporters will be able to claim the exemption for duty paid if they export six times the value of duty within a period of next six years. It is expected that this scheme would lose its significance under GST. 

There are certain drawbacks in the textile industry due to the higher tax rate and removal of benefits under cotton value chain, but it is safe to say that GST shall help this industry in the long run by getting more registered taxpayers under a well-regulated system. GST will help the textile industry to get more competitive in both the global and domestic markets, create opportunities for sustainable and long-term growth.


Impact of GST on Textile Industry