Synthetic fibers and yarns will be subject to 12% GST from January 1
NEW DELHI: The Ministry of Finance notified a uniform 12% GST rate on synthetic fibers (MMF), yarns, fabrics and clothing, thus tackling the reverse tax structure in the MMF textile value chain . Currently, the tax rate on MMF, MMF yarns and MMF fabrics is 18%, 12% and 5% respectively.
Taxing inputs at higher rates than finished products created an accumulation of credits and cascading costs. It has further led to the accumulation of taxes at various stages of the money fund value chain and the blocking of crucial working capital for the industry.
The GST Council, chaired by Union Finance Minister Nirmala Sitharaman and made up of state FMs, at its previous meeting on September 17 decided that reverse tariff anomalies in the textile sector would be corrected from January 1, 2022. Giving effect to this decision, the Central Council of Indirect Taxes and Customs (CBIC) notified on November 18 a GST rate of 12% for MMF, MMF yarns and MMF fabrics.
Experts said that while there is a provision in the GST law to claim unused input tax credit (ITC) as a refund, there were other complications and resulted in a burden of more important compliance. The reverse tax structure resulted in an effective increase in the sector’s tax rate.
Global textiles trade has shifted towards the MMF, but India has been unable to take advantage of the trend as its MMF segment has been strangled by the reverse tax regime, they said, adding that the correcting the rights anomaly will help the segment to grow and emerge as a big provider of jobs.
EY’s tax partner, Bipin Sapra, said the rate changes in the textile industry are the first of changes promised by the GST Council to rectify the reverse duty structure and bring structure efficient tax for a given sector.
Taxing inputs at higher rates than finished products created an accumulation of credits and cascading costs. It has further led to the accumulation of taxes at various stages of the money fund value chain and the blocking of crucial working capital for the industry.
The GST Council, chaired by Union Finance Minister Nirmala Sitharaman and made up of state FMs, at its previous meeting on September 17 decided that reverse tariff anomalies in the textile sector would be corrected from January 1, 2022. Giving effect to this decision, the Central Council of Indirect Taxes and Customs (CBIC) notified on November 18 a GST rate of 12% for MMF, MMF yarns and MMF fabrics.
Experts said that while there is a provision in the GST law to claim unused input tax credit (ITC) as a refund, there were other complications and resulted in a burden of more important compliance. The reverse tax structure resulted in an effective increase in the sector’s tax rate.
Global textiles trade has shifted towards the MMF, but India has been unable to take advantage of the trend as its MMF segment has been strangled by the reverse tax regime, they said, adding that the correcting the rights anomaly will help the segment to grow and emerge as a big provider of jobs.
EY’s tax partner, Bipin Sapra, said the rate changes in the textile industry are the first of changes promised by the GST Council to rectify the reverse duty structure and bring structure efficient tax for a given sector.