Ruling out demand of textile traders to exempt fabrics under the new indirect tax regime, the government has said that a zero percent GST on fabrics will make imported items cheaper and disrupt the existing input tax credit chain for the domestic industry. Finance Minister Arun Jaitley clarified that the textiles sector had been taxed in the past, as well. In fact, in 2003-04, the entire textiles sector was subjected to central excise duty. He added that the GST rates are equal or lower than the pre-GST tax incidence and therefore, the price of fabrics is not likely to go up.
Jaitley said the GST rate structure for the textiles sector enables ease of classification and determination of rate. The main demand of the textile trader is not to put any tax on fabrics, Jaitley said as he shot down the demand by saying that ‘nil GST on fabrics will break the input tax credit chain and then the garments/made ups manufacturers will not be able to get the credit of tax on previous stages’. He also said that nil GST on fabrics will result in zero rating of imported fabrics, while domestic fabrics will continue to bear the burden of input taxes.
Under the Goods and Services Tax (GST) regime, yarn and fibres made from silk, wool, cotton or other vegetable fibres attract 5 percent tax, while garments and made up clothings costing less than Rs 1,000 attract either 5 percent and those exceeding Rs 1,000 attract 12 percent levy. Besides, yarns made of man-made fibre or filament attracts 18 percent GST, while the same is 5 percent for fabrics.
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