Home / Knowledge / News / Textiles / GST to increase working capital needs of manufacturers
GST to increase working capital needs of manufacturers
06
Oct '17
Courtesy: India Ratings & Research
Courtesy: India Ratings & Research
The Goods and Services Tax (GST) would result in higher working capital requirements for most of the companies in the manufacturing sector, including textile production, according to India Ratings and Research (Ind-Ra). The increase in capital requirement is estimated at about 500bp of net value addition across the value chain for the textile industry.

The higher capital working requirement will be needed owing to the requirement to pay the entire tax at the point of the dispatch of goods from factory gates, and also for the movement to warehouses, Ind-Ra said in a press release.

Also, GST has been imposed on some goods including the cotton value chain for the first time. Furthermore, the reduction in the cost of production for most manufacturers due to the uninterrupted flow of input tax credit (ITC) would lead to some savings in working capital, which would partially offset the impact of higher working capital.

The increase in working capital requirement, as a proportion of revenue, would aid bank credit growth for large corporates. Ind-Ra believes that industry participants’ ability to tide over working capital mismatches during the implementation phase and beyond would be relative to their balance sheet strengths and capital market access. The ability of banks to fund these mismatches depends on the risk weights attached to such lending. Although it would be beneficial for the banking system, given the low incremental credit deposit ratio, banks may refrain from providing additional financial supports to entities with a weak credit profile.

As such, the transition to the GST regime would significantly affect companies with weak credit profiles because of a short-term liquidity mismatch due to delays in the availability of ITC. This is due to the difficulties in mapping the inventory held on the transition date with respective invoices, various GST network (GSTNIT back bone of GST)-related technical issues and admissibility of these ITC claims. The admissibility could depend on companies’ ability to match corresponding tax invoices with vendors’ filings.

The transition to the GST regime would affect the micro, small and medium enterprise (MSME) space more than other industries, as industry participants lack compliance infrastructure to map the entire outstanding inventory with tax invoices, according to Ind-Ra. (RKS)

Fibre2Fashion News Desk – India


Must ReadView All

India to be largest cotton producer in 2018-19: USDA

Textiles | On 22nd Jun 2018

India to be largest cotton producer in 2018-19: USDA

For the fourth consecutive season, India is expected to be the...

Organic Basics gets Polygiene help for advanced underwear

Apparel/Garments | On 22nd Jun 2018

Organic Basics gets Polygiene help for advanced underwear

Danish firm Organic Basics is working with Swedish company Polygiene, ...

Courtesy: Pexels

Textiles | On 22nd Jun 2018

Pakistan's textile exports up 9.82% in July-May FY18

The value of textile and garment exports from Pakistan increased by...

Interviews View All

Top executives
Textile industry

Union budget 2018-19 will have positive impact on apparel industry

Nitin Soni
Dolphin Jingwei Machines

Taxation policies need to be made simpler

Prabu Mohanram
Balavigna Weaving Mills Pvt Ltd

The biggest challenge that the weaving industry faces is high price

Vikas Banduke

Softech Controls Private Limited (SCPL) is a part of the Cotmac Group, an...

Erik Sy

Manila-based CustomThread is a start-up offering premium custom apparel...

Ravindra Jain, Ashish Baid

Oswal Prints Private Limited has been manufacturing and exporting ethnic...

Paolo Ocleppo
Sandvik Hyperion

Paolo Ocleppo, Rotary Cutting Segment manager, Sandvik Hyperion discusses...

Kai Poehler
Voith Paper GmbH & Co. KG

The glass mat industry is growing by five to eight per cent annually. Kai...

Suresh Patel
Sidwin Fabric

Sidwin Fabric is a manufacturer and exporter of polypropylene textiles and ...

Divvya and Nidhhi Gambhir
Walnut

<b>Divvya and Nidhhi Gambhir</b> started their career with the launch of...

Sanjukta Dutta
Sanjukta's Studio

<b>Sanjukta Dutta</b> creates unique garments by clubbing prints of...

Anisha Chaudhari
Threads & Shirts

Threads &amp; Shirts is a freshly-tailored concept providing men/women a...

Press Release

Press Release

Letter to Editor

Letter to Editor

RSS Feed

RSS Feed

Submit your press release on


editorial@fibre2fashion.com

Letter To Editor






(Max. 8000 char.)

Search Companies





SEARCH

Leave your Comments


June 2018

Subscribe today and get the latest update on Textiles, Fashion, Apparel and so on.

news category


Related Categories:

Advanced Search