The Central Government has notified the uniform Goods and Services Tax (GST) at 12% on MMF, MMF yarn, MMF fabrics and apparel to address the inverted tax structure in the Man-Made Fibre (MMF) textiles. The revised GST rates will come into effect from 1st January 2022. Before the change in tax structure, the GST on MMF, MMF yarn and MMF fabrics were 18%, 12% and 5%, respectively.
The Textiles Ministry states that the taxation of inputs at a higher rate than finished products blocked Input Tax Credit (ITC) and led to a cascading effect of taxes. It further led to an accumulation of taxes at various stages of the MMF value chain and blocked crucial working capital for the industry.
The ministry further added that differential rates create problems in tax compliance, and MMF garments cannot be taxed differentially. The Uniform rate makes it simple, and since there is so much high potential of value addition in the garment segment, the rate increase is likely to be absorbed in value addition. This move will provide clarity to the industry and settle, once and for all, the issues caused by an inverted tax structure.
The 12% uniform GST rate will help the entire value chain of the MMF textiles sector. The uniform GST rate will save a lot of working capital and reduce the compliance burden of the industry players besides helping resolve the ITC residues accumulated due to the inverted tax structure.
The ministry claimed that uniformity in GST rates would ensure a significant portion of MMF products and offer encashing the unutilised ITC. Since the tax on inputs will be refunded, output costs will be negated, thus, making exports more competitive.
For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in
DVSR Anjaneyulu known as AJ, is a Chartered Accountant by profession. Loves to listening to music & spending time with family and friends.
