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Impact of GST on textile industry | Company Vakil

What is GST?

GST is an Indirect Tax which has superseded many Indirect Taxes in India. The GST Act was passed in the Parliament on 29th March 2017. The Act came in effect on 1st July 2017; Goods & Services Tax Law in India is a comprehensive, multi-stage, destination-based tax that is levied on every value addition. It has shown to have an impact on various industries in the country including an impact of GST on the textile industry.

In other words, GST is one single indirect tax levied on the entire country. GST registration in India is mandatory for certain class of people/entities to comply with.

The Goods and Service Tax works on a system of tax slabs for different industries and products, services and practices. Everyone should be aware of the amount of tax that is payable on a day to day objects as well.

After the implementation of GST, the way industries do business changed a lot. The impact of GST on the textile industry is explained in detail hereunder.

What is a textile industry?

The textile industry is primarily concerned with designing, producing and distributing cloth, yarn, and clothing. The material used in the process of producing cloth can be natural, synthetic or chemically made. It is a major industry in India. It is concerned with the conversion of yarn into fabric and then fabric into cloth which is then used for various purposes.

The textile industry does a lot of production and manufacturing and employees both skilled and unskilled labour. It continues to be the second largest employment sector in India. The textile industry alone provides direct employment to over 35 million people in India. A 100% FDI via the automatic route is allowed in the textile industry. The textile industry is also one of the largest exporters. About 60% of the textile industry in India is based on cotton.

The textile industry is mainly governed by the Ministry of Textiles.

The impact of GST on the textile industry in India.

After the implementation of The Goods and Service Tax, certain things about the way the textile industry functions changed.

  • Better Input Credit System.

An important impact of GST on the textile industry is that it allowed the credit system to be more organized.

  • Reduction in the cost of manufacturing.

With a decrease in additional overhead costs such as octroi, entry fees, luxury tax etc, the overall manufacturing cost of the textile industry reduced due to GST.

  • Credit on Capital Goods.

The impact of GST allowed in an input credit for capital goods due to which the manufacturers will be able to import the latest technology easily and make more technologically advanced goods.

  • A sense of healthy competition.

A sense of competitiveness will be maintained in the textile industry. This is because due to the impact of GST, the prices of the manufactured products in the industry are at a healthy level.

  • Increase in the exports.

The GST would help boost the exports as the manufacturers will be able to make a greater number of products using the latest technology. Heavy export fees and the waiting time in obtaining an export license is tremendously cut down by the GST laws.

  • Long-Term Growth

Another important impact of GST on the textile industry is that it would support in the long-time growth of the same. It facilitates domestic as well as international markets, to create a larger consumer base, increasing exports.

Apart from these, GST would bring about a lot of other advantages to the textile industry. The manufacturers and industrialists should take advantages of the reforms and grow their businesses. However, there are certain sectors where GST would not boost the business economy. This will be held true in the case of the cotton value chain mainly because the exporters would not be able to claim the duty paid as they were able to before the implementation of the law. Apart from that, there are certain other disadvantages of GST on the textile industry listed below :

The burden of taxes on smaller businesses.

Hiring or outsourcing professional help for understanding new taxation laws can turn out to be expensive for businesses. However, a comparison scheme has been specifically designed for the MSME sector under which businesses with a turnover up to 1.5 crores can opt for a GST registration.

Internal costings will increase.

Hiring professionals for understanding or filing of taxes, training employees with the new scheme can turn out to be an expensive affair. This would, in turn, increase the overhead cost of smaller companies.

Purchasing a new business software.

All the businesses that were using ERPs to file their taxes will now have to spend money on buying the new GST software. Also, they will have to spend on training their staff on how to use the said software which can be an expensive affair.

Increase in the prices of products manufactured.

Because of the increase in the overhead taxes along with the basic increase in some sectors of the textile industry, the overall production cost increases. This would, in turn, lead to an increase in the costs of the products and will affect the consumer.

In conclusion,

Just as there are two sides to everything, there are two sides of the impact of GST on the textile industry. It would take a business quite some time to settle with the new taxation system considering that there has been no change in the system for the longest time. However, once the policies and tax slabs are settled, the process of taxation will turn out to be more effective, organized and streamlined. It would be easier for the government to keep a check on the flow of money in the textile industry.

An important impact of GST on any industry, including textile, is that it has increased the responsibility of the people in regards to payment of taxes. This helps in benefiting the economy of the country as a whole.

To avail the benefits of GST,  GST registration is required. At Company Vakil, we can assist you in the same. Our in-house team of experienced lawyers can help in making your GST registration process quick and hassle-free.

 

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