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Impact of GST on textile industry
19 Feb '10
2 min read
High on the agenda of the central government is bringing in much needed tax-reforms which will provide the much needed competitiveness to the industrial sector, in particular. The government is mulling a central Goods and Services tax (GST) to replace the plethora of taxes.
How will the new tax system be effectively applied in the textile sector, is the moot question. The unorganized or decentralized textile sector in India accounts for 76 percent of production in the industry, which is very huge by any account. Add to that the hundreds of thousands of textile traders spread across the country.
There are estimated to be around 2.2 million powerlooms and same number of knitting machines in the country mainly in the unorganized sector. Each typical factory has about 8-12 powerlooms or knitting machines, which means 250,000 powerloom units and an equal number of knitting plants.
To bring these gigantic number of units made up of production units and traders in to making them tax-compliant is a mammoth task. Incase that it is not successful; it could prove to be detrimental to the organized sector which has invested huge amounts of money, and could bring additional flows to a halt.
It may be recalled that the textile industry which was flourishing till the 1980's was brought to its knees by the unorganized sector, which due to the nature of small compositions of the units, did not come under the ambit of labour laws like Provident Fund and Employee State Insurance schemes meant for the benefit of the employees and also evade taxes.
This brought about an un-level playing field level, due to which hundreds of composite mills closed down in the hundreds in the 1980's as most of the unorganized sector was concentrated in the powerloom and fabric finishing sector who by their very nature of being small in size could get away without being tax compliant.
The other big challenge is the long-value chain of the textile industry, of which 90 percent is in the unorganized sector. This could prove to be the biggest challenge as most of the small weaving units may have a turnover below the threshold limit and there is a serious possibility of the VAT chain being broken.
How will the new tax system be effectively applied in the textile sector, is the moot question. The unorganized or decentralized textile sector in India accounts for 76 percent of production in the industry, which is very huge by any account. Add to that the hundreds of thousands of textile traders spread across the country.
There are estimated to be around 2.2 million powerlooms and same number of knitting machines in the country mainly in the unorganized sector. Each typical factory has about 8-12 powerlooms or knitting machines, which means 250,000 powerloom units and an equal number of knitting plants.
To bring these gigantic number of units made up of production units and traders in to making them tax-compliant is a mammoth task. Incase that it is not successful; it could prove to be detrimental to the organized sector which has invested huge amounts of money, and could bring additional flows to a halt.
It may be recalled that the textile industry which was flourishing till the 1980's was brought to its knees by the unorganized sector, which due to the nature of small compositions of the units, did not come under the ambit of labour laws like Provident Fund and Employee State Insurance schemes meant for the benefit of the employees and also evade taxes.
This brought about an un-level playing field level, due to which hundreds of composite mills closed down in the hundreds in the 1980's as most of the unorganized sector was concentrated in the powerloom and fabric finishing sector who by their very nature of being small in size could get away without being tax compliant.
The other big challenge is the long-value chain of the textile industry, of which 90 percent is in the unorganized sector. This could prove to be the biggest challenge as most of the small weaving units may have a turnover below the threshold limit and there is a serious possibility of the VAT chain being broken.
Fibre2fashion News Desk - India
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