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GST implementation brings textile industry to a standstill

LiveMint logoLiveMint 02-07-2017 Soumya Gupta

Mumbai: Apparel makers and wholesalers say the implementation of the goods and services tax has brought business to a standstill as their unregistered suppliers and customers try to stay out of the ambit of the new tax regime.

“There are about 25% of dealers who don’t pay tax at all,” said Suresh Chhatwani, owner of Mumbai-based Surkan International which makes, supplies and exports readymade women’s garments. About “10-20% of my business comes from unregistered dealers, who only want to deal in cash. What happens to my business if they refuse to comply with GST?”

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According to Chhatwani, while high end, branded apparel makers will benefit from the 28% tax rate, prices of small, local apparel brands will rise as implementation of GST will erode their thin margins. Wholesalers in the apparel business usually earn around 10-15% margin, he said. 

“These people (unregistered dealers) do not even have an agreement on the houses they live in, no ration card, no sales tax numbers, what will they do with GST?” said another distributor and supplier of women’s readymade garments from Mumbai who did not want to be named. “Officially, these dealers are making a lot more than Rs20 lakh a year (the turnover limit under which a business need not register for GST),” the distributor said, adding that he expects supplies from such dealers to be disrupted for another month to a month-and-a-half. 

It is not just suppliers, some small garments shops, too, are unwilling to make non-cash payments for stocks.

“If customers are not wanting to pay in cash or register, then there is a problem,” said Arnav Goyal, owner of Kanha Fashion that makes and supplies women’s wear to retail outlets. “Customers are unwilling to buy (stock) in the market right now.”

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Businesses in the industry have been splitting their holdings so that each is under the Rs20 lakh turnover limit, said another distributor who did not want to be named. 

“There are a number of factors that are at play,” said Anita Rastogi, indirect tax partner at tax advisory firm PwC. “One is ignorance on how the GST works; the second is that these businesses are very cash dependent; it is hard to convince them to move on from cash. Also, there are unfounded rumours in the market that there are 37 returns to file,” she said, adding that rather than three returns a month, the GSTR-1, 2 and 3 were parts of the same monthly tax return to be filled at three different times of the month. 

The unorganized sector makes up about 85% of the total Indian retail market, according to a January 2016 report by India Brand Equity Foundation, and is expected to reach 87% by 2019. Of women’s apparel, the fastest growing apparel segment in India, only 11% is made up by the branded market, as per a June 2017 report by Avendus Capital.

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