Centre provides big boost to textiles industry; announces uniform GST rate for MMF textiles

In a bid to address, inverted tax structure in the man-made fibre (MMF) textile value chain, the Ministry of Textiles has notified the uniform goods and services tax (GST) rate at 12 per cent on MMF, MMF yarn, MMF fabrics and apparel. Changed tax rates will come into effect from January 1, 2022.

Prior to the change in tax structure, the GST on MMF, MMF yarn and MMF fabrics were 18 per cent, 12 per cent and 5 per cent, respectively. “The taxation of inputs at a higher rates than finished products created build up of credits and cascading costs. It further led to accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry,” the Textiles Ministry release read.

It further added that differential rates create problems in tax compliance and MMF garments cannot be taxed differentially. “Uniform rate makes it simple and since there is so much high potential of value addition in garment segment that the increase in rate is likely to be absorbed in value addition. It will provide clarity to the industry and settle, once and for all, the issues caused by inverted tax structure,” it further underscored.

The 12 per cent uniform GST rate will help the entire value chain of MMF textiles sector as it will save a lot of working capital and reduce the compliance burden of the industry players besides helping in resolving the input tax credit (ITC) residues accumulated due to inverted tax structure.

Uniformity in GST rates will ensure export of a significant portion of MMF products and will offer an option of encashing the unutilised ITC. Since tax on input will be refunded, output costs will be negated, thus, making exports more competitive, the ministry claimed.

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