Imports are likely to remain 5-6 per cent cheaper than locally made apparel, despite the goods and services tax providing input credits to the textile industry.
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 CVD 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 special additional duty (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 GST rate on all textile products and apparel,” said by president of 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 GST subsumes all taxes, including protections. Garment imports will become cheaper due to removal of the SAD,” said an official from the Cotton Textiles Export Promotion Council. The textiles 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 textiles policy by September. It is also organising Textiles 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 textiles exports and create a competitive environment. We would like states to take such initiatives to help the industry showcase its products directly,” said by secretary of textiles ministry. Ministry had done some work on the new textiles policy, which would focus on India’s competitiveness in the world market.
Effective levies on imported garments
* Countervailing duty include excise 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 cess and others wok out to Rs 5.5%.
* Thus, duty protection of 5.5% from cheap import
* All duties subsumed in 5% of the GST for both domestic manufacturers and importers
* No protection, as both domestic manufacturers and importers would require to pay same duty
#CA Amit Shah & Co.