The implementation of the Goods and Services Tax (GST) in India has had a significant impact on various sectors, including the vibrant textile industry in Rajasthan. As one of the leading textile hubs in the country, Rajasthan has witnessed both positive and negative consequences resulting from the GST regime. In this insightful article post, we will delve into the specific impact of GST on the textile industry in Rajasthan. We will explore how GST has influenced key aspects such as taxation structure, competitiveness, export potential, and the overall business environment for textile manufacturers and stakeholders in Rajasthan.
What is GST?
Goods and Services Tax is referred to as GST. On July 1st, 2017, India implemented an indirect tax system. Excise duty, service tax, VAT (Value Added Tax), and other indirect taxes levied by the federal and state governments were all replaced by the GST.
The impact of GST on the Indian economy has been significant. The goal of the GST is to unify the tax code nationwide, simplify the tax system, and get rid of several taxes’ cascading effects. It is a destination-based tax, which means that it is imposed at the location where products and services are consumed.
The introduction of GST has simplified India’s tax structure, decreased tax complexity, and made doing business there easier. Additionally, it has created a more cohesive market within the nation and made it easier for goods to travel freely across state boundaries.
What is Textile Industry?
The textile industry refers to the sector involved in the production, processing, and distribution of various types of textiles, fabrics, and textile products. It encompasses a wide range of activities, from growing and harvesting natural fibres to manufacturing yarns, fabrics, and finished textile products.
The textile industry plays a significant role in meeting the global demand for clothing, home furnishings, industrial textiles, and other textile-based products.
It is a highly diverse and interconnected industry that involves multiple stages of production, that are fibre production, yarn spinning, fabric manufacturing, textile processing, retail, and distribution.
Overall, the textile industry is a vibrant and evolving sector that combines artistry, technology, and business to meet the diverse needs of consumers around the world. It continues to play a significant role in our daily lives, from the clothes we wear to the textiles that enhance our homes and surroundings.
Benefits of Textile Industry in Rajasthan
Rajasthan’s textile sector boosts the economy, employment, and culture. Rajasthan’s textile industry offers certain benefits:
- The Rajasthan textile industry employs many people, especially in rural areas. Labour-intensive industries help reduce state unemployment and poverty.
- Textiles drive Rajasthan’s economy. Domestic sales and exports create significant revenue. Jaipur, Jodhpur, Bhilwara, and other Rajasthani textile clusters attract local and international shoppers with their unique products and skill. Industry expansion and revenue boost the state’s economy.
- Rajasthan’s textile industry helps preserve and promote indigenous crafts and art forms. Block printing, bandhani, tie-dye, and embroidery are famous in the state. The textile sector showcases artists and weavers, preserving cultural heritage and giving Rajasthan’s textiles a unique personality.
- Rajasthan’s textile clusters bring together producers, suppliers, and craftsmen. They help industry stakeholders collaborate, share skills, and learn. Clustering textile enterprises promotes specialization, productivity, and Rajasthan’s textile industry’s competitiveness.
- Rajasthan’s textile sector has spurred infrastructure development. Textile enterprises flourish in textile parks, industrial estates, and specialized manufacturing zones. Common facilities, testing labs, and research centres in these infrastructural investments boost industry growth, efficiency, and competitiveness.
- Rajasthan’s textile industry exports well. Quality, craftsmanship, and design aesthetics make the state’s textiles popular abroad. Rajasthan textile industries export clothing, home furnishings, fabrics, and handicrafts. Export profits boost Rajasthan’s position in the global textile market.
- The Rajasthan textile industry generates jobs, economic growth, cultural preservation, infrastructure development, and export prospects. It promotes socioeconomic development and highlights Rajasthan’s textile tradition and artistry.
Positive impact of GST on Textile Industry in Rajasthan
The Rajasthan textile industry has benefitted from GST implementation. Key benefits of GST on textile industry are:
- GST replaced various state and national taxes in Rajasthan, thus simplifying taxation. This has simplified textile compliance, lowered administrative complexity, and boosted transparency.
- Before GST, separate taxes were levied at different levels of the textile supply chain, creating a cascading effect or “tax on tax.” GST input tax credits remove this cascading impact. Rajasthan textile businesses can now claim input tax credits, lowering taxes and improving efficiency.
- GST levelled the textile industry in Rajasthan. State tax rates and frameworks caused price differences. A unified tax framework lets businesses compete on product quality, efficiency, and price rather than tax benefits. Rajasthan textile companies are more competitive in domestic and international markets.
- GST eased export procedures for Rajasthan textile manufacturers. Exports are GST-free. Exporters now have less compliance obligations, making exports easier. It also increased Rajasthan’s textiles’ global competitiveness.
- GST has promoted Rajasthan’s textile industry’s transformation from unorganized to organized. Businesses benefit from formality due to increased compliance requirements and input tax benefits. This change improves governance, transparency, and competition.
- Textile centres in Rajasthan, such as Jaipur, Jodhpur, and Bhilwara, benefit from the boost. GST has made these hubs more growth friendly. It has simplified tax processes, decreased logistics costs, and made these textile clusters more competitive.
- Rajasthan’s textile industry has benefited from GST. It has improved competitiveness, taxation, export procedures, and organized textile industries. These factors boosted Rajasthan’s textile industry.
- GST lead to logistics cost reduction-GST textile manufacturers faced various state-level checkpoints and entry levies. GST abolished interstate roadblocks and entrance taxes. This has improved cross-state goods flow, lowering logistics costs and delays.
- GST simplifies textile taxation. Online GST registration, return filing, and input tax credit claims are uncomplicated. Textile makers benefit from this simplification.
Negative effect of GST on Textile Industry in Rajasthan
While the Goods and Services Tax (GST) has brought several benefits to the textile industry in Rajasthan, there have also been some negative impacts:
- Higher taxes: Rajasthan textile businesses face higher taxes due to GST. The textile industry in India had tax exemptions before GST. Many businesses now pay more taxes due to GST’s standard tax rate. This may impair industrial SMEs’ profitability and competitiveness.
- Compliance costs: Rajasthan textile manufacturers now pay more for GST compliance. They must keep detailed records, file frequent returns, and follow GST law. Smaller players may not have the resources or knowledge to meet growing compliance standards, which can increase costs and administrative complexity.
- Impact on the unorganized sector: Small-scale weavers, craftsmen, and job workers dominate Rajasthan’s textile industry. The unorganized sector avoided taxes. GST mandates tax compliance and recordkeeping for these businesses. The higher regulatory burden may threaten their viability and drive them toward the organized sector.
- Ambiguity in tax classification: Rajasthan’s textile sector includes many products with varying GST tax rates and classifications. Complex and subjective textile tax rate determination might lead to disagreements and litigation. Businesses with numerous product categories often struggle with tax classification ambiguities.
- Related Party Transactions: Transaction value can be denied if it is with a related party or another entity with a distinct GST No. In such circumstances, valuation rules will determine value.
- No-Input tax Credit: Most Rajasthan textile taxpayers adopt composition scheme. The Input Credit chain breaks when Registered Taxpayers buy from composition Taxpayers. The product costs more due to input tax credit.
- Impact on Job workers: Textile employees, especially in dyeing, printing, and embroidery, are crucial. Larger manufacturers subcontract them. However, GST employment work regulations and compliance requirements have become more complex, requiring more paperwork and compliance. This may hurt job prospects and livelihoods of job workers in Rajasthan.
- Road Tax/Environment Tax: As part of the GST System, Road Tax is also required to be included. No taxes other than CGST, SGST, and IGST may be subtracted from the value, according to the GST model act. Whereas the road tax component was not subject to service tax or VAT.
- Post-Supply Discounts: In general, manufacturers provide dealers various discounts based on goals, items lifted, etc. However post-supply discounts won’t be accepted as a value deduction if they aren’t associated with an invoice in the GST return.
While there have been negative effects, the GST regime promises to streamline the tax structure and improve the textile business long-term. Businesses may adjust to the new taxes structure and the government resolves industry concerns through policy modifications and clarification.
Impact of GST on Registration, Return & Accounting
The impact of GST on Registration, Return and Accounting are as follows:
- Registration: Small and non-registered dealers must apply for new GST registration if their turnover exceeded Rs 20 Lac in the preceding financial year. Even with the same PAN, dealers must register in each state. Dealers can register several dealerships in the state.
- Returns: Each GST registration must file mandatory GST returns, in addition to ISD/TDS returns. Customers do not receive tax credits if vendors do not pay or file returns. Thus, GST must assure timely tax payment and return submission.
- Accounting: Vendor-to-tax consultant communication and document flow should occur before the 10th of the next month. Accounting must move faster.
GST Rates on Textiles and Textile products
From January 1, 2022, all footwear, irrespective of prices, will attract GST at 12%, and all textile products, except cotton, including readymade garments will have 12% GST.
Under the heading “other made-up textile articles, sets, worn apparel and worn textile articles; rags,” Chapter 63 of the HSN code contains a variety of textile products, including curtains, bedsheets, used clothing, and other textiles.
- A GST rate of 5% is imposed if the sale price of the textile product is below ₹ 1000.
- A GST rate of 12% is imposed if the sale price exceeds ₹ 1000.
| Fibre Type | COTTON | SYNTHETIC | SILK/JUTE | WOOL STANDARD | WOOL CARDED | OTHER NATURAL FIBRES |
| Raw Material | 5% | 18% | 0% | 0% | 5% | 5% |
| Yarn Spinning | 5% | 18% | 5% | 5% | 5% | 5% |
| Yarn Knitting | 5% | 5% | 5% | 5% | 5% | 5% |
Textile items included in HSN code chapter 63
The textile items and products included in HSN Code chapter ‘63 is:
- Interior blinds and curtains (including drapes) and bed valances.
- Kitchen and bathroom towels, as well as knitted or crocheted bed sheets, are typically made of terry towelling or other related terry textiles.
- Additional furnishings or decorative items include tablecloths, table covers, napkins, pillowcases, counterpanes, bed sheets, and more. Apart from terry towels, mosquito nets, and cushion cover.
- Travel carpets and blankets.
- The same kind of bags and sacks are used for product packaging.
Takeaway
The implementation of the Goods and Services Tax (GST) has had a mixed impact on the textile industry. While there are both positive and negative aspects, the overall effect has been significant. In conclusion, while GST has brought certain benefits to the textile industry, such as streamlined taxation and increased competitiveness, it has also presented challenges, including increased tax burden and compliance costs. The long-term impact of GST on the industry will depend on how these challenges are addressed by the government and how businesses adapt to the new tax framework.
