The tax rate under GST is higher than the current tax rate for the textile industry. Despite this, the textile industry would benefit from the introduction of GST due to following changes:
1. Break in input credit chain
A significant portion of the textile industry in India operates under the unorganized sector or composition scheme, thus creating a gap in flow of input tax credit. Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector.
2. Reduction in manufacturing costs
GST subsumes the various fringe taxes like Octroi, entry tax, luxury tax etc. which would help reduce costs for manufacturers in the textile industry.
3. Input credit allowed on capital goods
Previously, the import cost of procuring the latest technology for manufacturing textile goods was expensive as the excise duty paid was not allowed as input tax credit. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.
4. Export of textile products to get a boost
GST will streamline the process of claiming Input Tax Credit (ITC) and allowing the textile industry to be more competitive in the export market.
5. Improved compliance
The value chain under the GST will be fully traceable. Improved compliance will lead to more revenues as long as that rate is not extremely high.