The government on Monday said that the uniform goods and services tax (GST) rate at 12% on manmade fibre, yarn, MMF fabrics and apparel will reduce the compliance burden of industry, and aid the resolution of input tax credit residues that accumulated due to the inverted tax structure earlier.
The GST on MMF, MMF Yarn and MMF Fabrics were 18%, 12% and 5% respectively.
The changed rates will come into effect from January 1, 2022.
“This will help the MMF segment grow and emerge as a big job provider in the country,” the textiles ministry said in a statement, adding that the uniform 12% GST on job work related to dyeing and printing services will benefit the industry to absorb and recover unutilised ITC.
As per the statement, the significant portion of MMF products (output) is expected to be exported, it will lend a better scope for encashing the untilised ITC. Also since tax on input will get refunded, on output (export) which will be zero rated, it would not add to cost and make exports competitive
Also, uniform 12% GST will help the industry having huge portion of piled up opening ITC by enabling them to encash the same progressively.
Noting that differential rates for garment creates problem in compliance of tax regime, it said MMF garment cannot be identified easily and cannot be taxed differently, hence there is need for uniform rate as it would make it simple and the high potential of value addition in garment segment would absorb the increase in rate in value addition.
“The taxation of inputs at higher rates than finished products created build up of credits and cascading costs and further led to accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry,” it said.
The ministry said that though there is a provision in GST law to claim the unutilised ITC as a refund, there were other complications and resulted more compliance burden. The inverted tax structure caused effective increase in rate of taxation of the sector.
“The world textiles trade has been moving towards MMF but India was not able to take advantage of the trend as its MMF segment was throttled by inverted tax regime,” it said.
It will provide clarity to the industry and settle, once and for all, the issues caused by inverted tax structure, according to the ministry.