Double tax for Australian-made fabrics

03 Dec '09

3 min read

The wind-up of a duty concession scheme in June 2010 will result in the double-taxing of garments made overseas from Australian-made fabrics, according to the TFIA (Council for Textiles and Fashion Industries of Australia).

Since 2000, imported garments that use Australian-made fabrics have been granted a duty concession under the EOAP (Expanded Overseas Assembly Provisions) scheme. But after June 2010, when the scheme is scheduled to wind up, Australian garment manufacturers will be penalised for using locally made fabrics in garments they assemble overseas, says the executive director of the TFIA, Jo Kellock.

“In effect these manufacturers will be taxed twice for using Australian-made fabrics - first in the form of GST on the purchase of Australian-made fabrics, and then again in the form of import duties on assembled garments that use the fabrics," Kellock says. The double-tax impost would make these Australian -made fabric products uncompetitive in a highly price sensitive market, she says.

Meanwhile importers who used fabrics produced overseas would only be charged a single 10% tariff on the assembled garment - and pay no GST. “That means that manufacturers who use Australian fabrics will no longer be operating on a level playing field with those who import garments using overseas made fabrics,” Kellock says.

The end of the EOAP scheme threatens innovative collaborations between local firms such as garment manufacturer Andorra Australia and fabric manufacturer ABMT, both based in Melbourne. Andorra and ABMT have collaborated over the past fifteen years to develop specialist fabrics such as ultra-lightweight merino wool blends for thermal base wear and an aloe vera infused cotton-lycra blend designed to add softness and freshness to undergarments. These garments are sold in Target and Target Country stores Australia-wide.

Without the duty concession under the EOAP scheme, Andorra would be taxed twice for using fabrics developed and made especially for it by ABMT. “We'll be paying 10% GST on the fabric we purchase from ABMT and then another 10% on that same fabric when it is imported from overseas in the form of the assembled garment,” the general manager of Andorra Australia, Andrew Goulopoulos says.

“We have worked with ABMT for many years to develop these new fabrics in response to market trends,” says Goulopoulos. “Working with a local manufacturer in this development process has been convenient and efficient, but this partnership is now being threatened by the extra tax penalty we will incur for using an Australian product.”

The EOAP scheme has worked well to offset a taxation anomaly to promote the use and development of high quality Australian-made fabrics, Kellock says. “There is no justification for removing this concession for Australian garment manufacturers who are keen to use Australian fabrics. We should be using every lever to encourage them, not making it harder.”

The Council of Textile and Fashion Industries of Australia (TFIA)

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