Value chain

Flat 12% GST on MMF value chain to come into force on January 1 in India

The Government of India has announced a flat rate of Goods and Services Tax (GST) of 12% on Man-Made Fibers (MMF), MMF Yarns, MMF Fabrics and Garments to address the inverted tax structure in the chain of textile value MMF. The modified rates will come into effect from January 1, 2022.

Until now, the GST levied on MMF, MMF Yarn and MMF Fabrics was 18%, 12% and 5%, respectively. Taxing inputs at higher rates than finished goods has created credit accumulation and cascading costs. This has further led to an accumulation of taxes at various stages of the MMF value chain and the tying up of crucial working capital for the industry.

Although there is a provision in the GST Act to claim the unused input tax credit (ITC) as a refund, there were other complications and this resulted in a greater compliance burden. heavy. The reverse tax structure has resulted in an effective increase in the sector’s tax rate. Global textiles trade has shifted towards MMF, but India has been unable to take advantage of the trend as its MMF segment has been strangled by a reverse tax regime, the textiles ministry said in a statement. Press release.

The Government of India has announced a flat rate of Goods and Services Tax (GST) of 12% on Man-Made Fibers (MMF), MMF Yarns, MMF Fabrics and Garments to address the inverted tax structure in the chain of textile value MMF. The modified rates will come into effect from January 1, 2022. This uniform rate is likely to contribute positively to the growth of the sector.#

The flat rate of 12% is likely to contribute positively to the growth of the sector by helping to save a lot of working capital and reducing the compliance burden on industry players. This will be helpful in resolving residual ITCs that accrued earlier due to the reverse tax structure.

In addition, uniform GST rates on work related to dyeing and printing services will benefit the industry in absorbing and recovering unused ITCs. Since a large percentage of MMF products (production) are expected to be exported, this will provide a better opportunity to cash in the ITC so far. Moreover, since the tax on inputs will be refunded, on the production (export) which will be zero-rated, this will not increase costs and will not make exports competitive.

The flat rate will also help the industry with a huge portion of the stacked opening ITC by allowing them to cash in on the same gradually.

“Differential rates for clothing create tax compliance issues. MMF clothing cannot be easily identified and cannot be taxed differently, hence the need for a uniform rate. The flat rate simplifies things and since there is such a high potential for added value in the clothing segment, the rate increase is likely to be absorbed by the added value. This will bring clarity to the industry and settle, once and for all, the problems caused by the reverse tax structure,” the department said in the statement.

Fibre2Fashion (KD) News Desk