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The Southern India Mills’ Association

Committed to Foster the Growth of the Textile Industry

Industry setttles to GST, but needs tax anomalies to be corrected

Even after a year has passed since the introduction of GST, tax refunds and anomaliesstill remain a challenge for many in businesses like handicrafts, textiles, gems and jewellery, which have a larger footprint in the state’s economy. Businessleaders from multiple sectors said that while the industry is gradually settling into the new normal the irritants, in some cases holding back companies from expanding their capacity, need to be removed.
“The benefits of Goods and Services Tax (GST) are multiple. But there are some tax anomalies that need to be corrected,” said Dileep Baid, ex-president of Federation of Rajasthan Handicrafts Exporters.
Baid said that the ceramic industry used to pay only 2% tax on diesel which now has increased close to 20% and this has put the Indian handicraft makers at a disadvantage compared to the rivals in China.
“Despite higher cost of doing business in India, we were able to find a market for ourselves against Chinese products. But the additional burden of tax on diesel has created further headwind and reduced our competitiveness. We can only hope that the government understands this and rationalizes taxes on diesel,” added Baid.
Rajasthan is the second largest manufacturer of handicrafts in the country after Uttar Pradesh. The sector which used to pay VAT of around 5% has been put under 12-18% tax bracket in the GST regime. Some segments like furniture even attracts the highest slab of 28%
The textile industry catering to domestic market was impacted initially. But since then, businesses have restructured their operations to the new tax regime. But the export segment has been hit hard by the reduction of duty drawback significantly.

“There are two problem the industry is facing today. The refunds are not being cleared causing tightness in working capital requirements. Secondly, reduction of duty draw back by about 60% for textile exporters has dwelt a big blow,” said Saurav Gupta, general secretary, Association of Garment Exporters, Sitapura.
For the gems and jewellery industry, GST is not much of an issue. What the industry wants is the reduction of 10% import duty and also 0.25% GST on precious and semiprecious stones when studded in jewellery.
“We have been demanding for reduction of import duty from the current 10%. Because, along with GST, the tax component goes up to 13%. In times like this when the rupee is depreciating, we cannot help but increase the prices which is not good for creating demand in the market,” said Kailash Mittal, president of Sarafa Traders Committee.