GST India: Impact on Textile Sector:

Most textile products are likely to be either exempted or taxed at lower rate, however even at the merit rate of 12% the tax would be higher than the prevailing VAT rate of 4-6% across various states. Currently on sale of textile products (especially readymade garments) cascading of taxes existing as the Excise gets stuck to the product over which VAT is applied. This break in smooth flow of credit will get addressed under GST.

Since exports under GST would be zero rated, this would give a competitive boost to textile exports in India which is facing stiff competition from Bangladesh, Pakistan etc.

As petroleum products (diesel used in running generators/machinery) are likely to be outside GST purview at least in the initial years, inputs will continue to be non-creditable. Clarity will also be required on tax treatment of natural fibers vis-à-vis man-made fibers, unstitched garment vis-à-vis readymade clothes and luxury (silk) products.

The treatment of inputs from purchase of capital gods (power-looms) varies from state to state (can be claimed over a period ranging from 1 year to 3 year). This would become uniform under GST and provide more predictability. Refunds of excess inputs would also be automatic (especially in cases of textile product outputs which are zero rated).  

Since a majority of textile units are in MSME segment, ease of compliance would be a major relief. Textile manufacturers will be encouraged to setup integrated facilities with tax consideration not becoming a hindrance in their decision making process. 

(Views expressed are strictly personal)