Beruflich Dokumente
Kultur Dokumente
Industry
7 Apr 2015
Taxes to be Replaced by GST
►State VAT
►Entry tax
►Improved compliance
► GST
► Reform
► Improved Resource
Allocation ► Lower Price of Capital
Goods
► Higher Total
Productivity
► Larger Capital
► Stock
►Improved
Competitiveness
Higher
►
► Potential Output
►Lower rate: 12 %
►Exempt category
Page 6
Share of Textiles in Potential GST Tax Base
16.00 70.0
14.00
60.0
12.00
50.0
10.00
40.0
8.00
6.00 30.0
4.00 20.0
2.00
10.0
0.00
2004-05
2006-07
2008-09
2010-11
2012-13
0.0
1974-75
1970-71
1972-73
1976-77
1978-79
1980-81
1982-83
1984-85
1986-87
1988-89
1990-91
1992-93
1994-95
1996-97
1998-99
2000-01
2002-03
Clothing and furnishing (% to PFCE) PFCE excluding food, education, and health
Page 7
Key aspects of current taxation system as it applies
to Textiles
►Usually low/ zero rates of taxes on final products
►Tax is shifted back to production (as opposed to consumption) leading to
blocked input taxes and higher cost of production
►Inefficiencies in production
►Exemption of production inputs
►Duty Drawback Scheme
►Exemption by size of operation, giving rise to fragmentation of industry
►Complexities in compliance and administration
►Ad-hoc or piecemeal efforts to apply tax leads to significant opposition
from all segments of textiles industry. Any piecemeal tax is complex,
creates competitive distortions and is subject to collusion/ harassment
by Tax Administration authorities
►Classification disputes
►Fabrics vs garments, e.g. should Sarees be treated as fabrics or as readymade
garments
►Lack of Fibre neutrality
►Cotton fibre vs manmade fibre. Cotton fibre treated favorably as compared to
man-made fibres
►Effective tax rates vary by degree of integration
►Power looms vs Composite mills. Effective tax rates for composite mills higher
than that of power looms discouraging integration of production adversely
affecting efficiency
textile products
Carpet weaving
Cotton textiles
synthetic fibre
Miscellaneous
mesta textiles
Khadi, cotton
(handlooms)
Readymade
fibres, resin
Jute, hemp,
Silk textiles
garments
Synthetic
Woollen
Art silk,
textiles
textiles
textiles
Structure of
Inputs
Textile inputs 46.3 52.1 45.1 38.7 40.6 38.4 42.2 47.1 41.3 14.1
Non-textile
16.2 11.9 19.5 25.2 28.4 19.5 19.9 16.5 23.4 58.4
inputs (goods)
Non-textile
36.5 34.2 33.9 35.0 29.7 39.6 36.7 35.3 33.6 22.4
inputs (services)
Total Non-
52.7 46.1 53.4 60.2 58.1 59.0 56.6 51.9 57.0 80.7
textile inputs
Non-textile
inputs (not 1.0 1.8 1.4 1.0 1.3 2.5 1.2 1.0 1.7 5.2
shown)
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Khadi, cotton
100 104.0 112 7.7% -2.2% 0.8% -1.4%
textiles (handlooms)
Cotton textiles 100 107.1 112 4.6% -1.3% 0.8% -0.5%
Woolen textiles 100 109.3 112 2.4% -0.7% 0.8% 0.1%
Silk textiles 100 109.6 112 2.2% -0.6% 0.8% 0.1%
Art silk, synthetic
100 110.2 112 1.6% -0.5% 0.8% 0.3%
fiber textiles
Jute, hemp, mesta
100 109.0 112 2.8% -0.8% 0.8% 0.0%
textiles
Carpet weaving 100 105.6 112 6.1% -1.7% 0.8% -1.0%
Readymade
100 110.5 112 1.4% -0.4% 0.8% 0.4%
garments
Miscellaneous textile
100 112.0 112 0.0% 0.0% 0.8% 0.7%
products
Page 15
Key empirical findings
►Overall current RNR lower than the sum of lower CGST and SGST rates
(12%); implies additional tax burden
►Blocked input taxes are relatively more for State VAT since output tax
rates are zero for most categories compared to Cenvat where Input
Cenvat on goods and service tax on service inputs are both rebated
►Key concern – Increase in tax burden from 9.3% to possibly 12% which
may lead to a reduction in demand
►However overall impact may not be negative
►Greater efficiency in production – may lead to downward movement of prices
►Exports may go up due to true zero rating
►A major reform like GST will lead to higher GDP and higher disposable
incomes
►Price and Income elasticity of demand may compensate for each other
If all textile categories are put at the lower CGST and SGST rates, key effects
will be as follows:
1. Transparency effect
► Tax burden will be more transparent since blocked input taxes will be eliminated, all
input taxes will be fully rebated
4. Present zero-rating of textile outputs in the case of State VAT will go away
and taxes paid on capital goods and textile machinery will also be rebated
5. Productivity Enhancing Effects; Improvement in allocative efficiency;
modernization of textile sector encouraged
6. Improved Compliance Effect
► With input tax credit at each stage of value added and creation of information
chain, there would be automatic improvement in compliance
7. Keeping the same GST rate for all textile segments will facilitate further
experimentation in mixing and blending as it can be done without any tax
implication
8. Present GST discussions indicate that cascading may continue with respect to
petroleum products that serve as inputs; to that extent the burden on artificial silk
and synthetic fibres will continue; since much of these products are exported, this
disadvantage may continue unless a suitable mechanism is found to rebate input
Page 20
tax on petroleum products
Implications of GST for Indian Textile Industry
Policy Options under GST
Page 21
Pattern of expenditure on essential items in Urban India
- Share of Monthly per capita expenditure 2011-12
►Zero rating
►Exemption
►Zero rating
► Zero rating is possible only if all Input taxes are refunded
► Most jurisdictions find it difficult to administer and monitor input tax refunds
► Zero-rating in India proposed to be limited to exports
►Exemption
Page 26
Pattern of expenditure on essential items in Rural India
- Share of Monthly per capita expenditure 2011-12