GST rate at 12% will negatively impact textile sector – Feedback

In ICRA’s view, a 12% (lower rate) recommended by the Dr. Arvind Subramanian Committee is likely to have a negative impact on the textile sector, especially the cotton value chain, which is currently attracting zero central excise duty (under optional route); unlike the man-made fibre sector, where the fibre attracts excise duty at the manufacturing stage (unlike cotton). Hence there is an incentive for the downstream players in manmade sector to avail the Input Credit Tax (ITC).

ICRA points out that the most of the cotton based textile players in the value chain operate through the optional route, thereby resulting in lower duties. The key reasons for the same are exemption on cotton and hence the lower ITC for cotton spinning mills; as a result the cotton yarn manufacturers opt for the optional duty route without claiming ITC and pay zero excise duty.

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