New Delhi: The government today ruled out cutting tax rates for the textiles sector, saying a zero per cent GST on fabrics will break the input tax credit chain for the domestic industry and make imported items cheaper.
Amid protests in Gujarat by textile traders who are demanding rollback of 5 per cent GST on fabrics, Finance Minister Arun Jaitley said it is not correct to say that textiles sector was never taxed in independent India.
"In fact, during 2003-04, the entire textiles sector was subjected to central excise duty," he said in a written reply to a question in the Rajya Sabha.
"Generally, the GST rates are equal or lower than the pre-GST tax incidence. And therefore, the price of fabrics is not likely to go up," he said.
Under the Goods and Services Tax (GST) regime yarn and fibres made from silk, wool, cotton or other vegetable fibres attract 5 per cent tax.
While garments and made up clothings costing less than Rs 1,000 attract either 5 per cent and those exceeding Rs 1,000 attract 12 per cent levy.
Yarns made of man-made fibre or filament attract 18 per cent GST, while he same is 5 per cent for fabrics. Jaitley said the GST rate structure for the textiles sector enables ease of classification and determination of rate.
The main demand of the textile trader is not to put any tax on fabrics, Jaitley said as he shot down the demand by saying that "nil GST on fabrics will break the input tax credit chain and then the garments/made ups manufacturers will not be able to get the credit of tax on previous stages".
Also nil GST on fabrics will result in zero rating of imported fabrics, while domestic fabrics will continue to bear the burden of input taxes, he said. Jaitley further said that necessary steps have been taken to facilitate taxpayers to take GST registration.
GST Sewa Kendras have been set up in various centres to handhold the taxpayers and to provide all necessary guidance regarding GST compliance.
In reply to a separate query, Minister of State for Finance Santosh Kumar Gangwar said the GST rates were decided taking into account the pre-GST indirect taxes incidence on goods and service.
"With the GST rates so notified the tax incidence on items like food grain, milk, egg, sugar, vegetable edible oils, spices in GST regime is lower than the tax incidence in the pre-GST regime," he said.
With regard to GST rate on pesticides, Gangwar said prior to GST pesticides attracted excise duty of 12.5 per cent in addition to average VAT rate of 4 per cent. Also there were taxes such as CST, Entry Tax, Octroi, etc. The GST rate on pesticides is 18 per cent.
"Thus, the total tax incidence pre-GST and post-GST has not changed significantly, so as to impact the prices of pesticides, in general and the interest of farmers in particular," Gangwar said.
