18% GST on MMF and Yarn – A severe blow to synthetic sector

Shri J Thulasidharan, Chairman CITI has appealed to the Hon’ble Union Finance Minister, Union Textile Minister, Textile Secretary and Revenue Secretary to reduce the MMF/Synthetic Fibre and Yarn GST rates from 18 per cent to 12 per cent.   The synthetic sector growth rate is stagnated due to high price, higher cost of manufacturing due to high input prices and competition from China, South Korea, Indonesia and Thailand.  He elucidated that mill gate prices of MMF/Synthetic fibre and yarns are higher in India compared to competitors like China, Indonesia and South Korea. This would pressurize the Indian textile producer to source MMF yarn and fabrics at cheaper rate from China and Indonesia.

He further added that these countries are having lowest tax and high export incentives to produce and supply MMF textile goods in the global market. Therefore 18 per cent GST rates on MMF/Yarns will have great ramification on the India’s MMF fibre and yarn Industry business prospects. Small and Medium Enterprises (SMEs) and unorganized mills will face severe challenges as their profits are very low. He added that the SMEs of MMF/Synthetic fibres and Yarns might not withstand the market pressure for more than three months with 18 per cent GST from 1st July onwards as GST rate on MMF is highest among the major textile producing and supplying countries of the world. The significance of the unorganized sector is reflected from the fact that only 4 per cent fabric is produced in composite mill segment.

He also added that industry is apprehensive that 18 per cent GST regime for MMF based Textile Industry will increase cost, inter-sectoral competitiveness leading to distortions in terms of increased cost of spun yarns from MMF and other blended fibres, iniquitous tax burden between integrated and independent units and threat of dumping of imported goods made of MMF and synthetic yarns in the country. He said, “Eighteen per cent GST will make the independent producer completely un-viable in competition to the integrated producer with dis-proportionate unabsorbed ITC”.

He said, “Disadvantage to MMF fibre & Yarn based textile goods will keep surmounting as India’s Free Trade Agreements (FTA) with ASEAN and SAFTA will allow imports of these items from countries like Indonesia, Thailand and Bangladesh which offers MMF textile goods at low and cheap prices”. He further explained that lower prices and low tax incidence on MMF sector in these countries will lead to flooding of MMF and yarn based textile goods to India on account on higher prices in domestic market. China and Indonesia would be having maximum advantage as they can supply MMF textile items to India using their preferential arrangements. India’s preferential agreements with ASEAN countries may help suppliers from the China and ASEAN region to export MMF based textile items to India by utilizing the preferential advantage to the maximum.  He said, “Under the new GST taxation CVD applied on the imports has already been subsumed and therefore imports from FTA partners would attract lower basic custom duty”. Therefore, business scenario under post GST for synthetic textile goods is very gloomy and will have serious injury to the industry compared to competing countries.

He stressed upon to rationalize the GST rates on a war footing basis as this will dent India’s competitiveness in MMF sector. He also said, “Local spinning, weaving and knitting industries of SMEs and unorganized sector would be losing their business and profitability that will lead to the mass scale closure of the mill and throwing lakhs of power loom weavers and other workers out of jobs”.

Shri J. Thulasidharan said, “Therefore, on behalf of textile industry fraternity I request to the Hon’ble Finance Minister, Shri Arun Jaitley and GST Council to favourably consider to bring down the GST rates from 18 per cent to 12 per cent on MMF fibre and yarns”. This will to a great extent mitigate the hardships due to iniquitous embedded taxes in the proposed GST structure in comparison to the pre GST regime.