GST impact on textiles: Subsidy for garment makers cut to XS size as government reduces benefits under remission of state levies

NEW DELHI: The government will offer only a tiny fraction of the subsidy amount it used to pay to apparel players earlier for the remission of state levies (RoSL) under the duty drawback scheme, thanks to the goods and services tax (GST) regime that has subsumed key indirect taxes at the states’ level.

RoSL, under which garment exporters get refunds from the Centre against all the levies they pay at the states’ level, is the most important scheme (with fiscal significance for the government) in the Rs 6,000-crore garments package announced last year.

The government has budgeted Rs 1,555 crore for the RoSL scheme in 2017-18. Before the introduction of the GST, garment exporters used to get refunds to the tune of 2.9-3.9% of the freight-on-board value of products under the RoSL scheme.

The government has decided to reduce it to an interim rate of 0.39% (up to September 2017), as most of the state levies, including central sales tax, have been scrapped in the GST regime, said a senior textile ministry official.

 

  

However, only two state levies (value-added tax on petroleum products and electricity charges) will continue under the GST regime as well, on the basis of which the interim refund structure has been based, he added. Last year, the government initially provided around Rs 400 crore for RoSL and some of the claims pertaining to 2016-17 are being settled this year. Garment exporters, however, have asked the government to review the interim rate, saying the reduction in relief will adversely impact apparel exports.

The Apparel Exports Promotion Council (AEPC) said they have asked the finance ministry to restore the RoSL rate at 3.9%. It also wants the overnment to allow input tax credit on the GST paid on job work and stock transfer where drawback isn’t available.

Recently, the textiles ministry made it mandatory for exporters to give a declaration and certificates in a prescribed format for seeking the duty drawback.

However, in a letter to GK Pillai, chairman of the drawback committee of the finance ministry, AEPC chairman Ashok G Rajani said the declaration and certificates will raise exporters’ compliance burden, as well as transition cost. This is because GST has been rolled out only from this month and the offices are not yet fully ready to provide additional certificates.

Recently, Rajani said as many as 80% beneficiaries of the RoSL scheme are exporters with a turnover of less than Rs 10 crore per year. Apparel exports have been registering double-digit growth since the start of the disbursement of RoSL (around December last year). During March and April, garment exporters were able to increase production by around 30% and employed at least 5% more workers during the same period, according to Rajani.

Source::: Financial Express, dated 30/07/2017.