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GST rates: Concern over impact on exports of textiles, jewellery

LiveMint logoLiveMint 22-05-2017 Asit Ranjan Mishra

New Delhi: The commerce ministry fears that a higher than expected goods and services tax (GST) rate on gems and jewellery and textiles products may make such exports uncompetitive and exporters may have to be compensated.

The two items are among six on which GST rates could not be finalized in the 14th GST council meeting in Srinagar last week and a decision was deferred for the next meeting on 3 June.

“After GST rates are imposed, if the tax rates increases on textiles and gems and jewellery sectors, then we have to evaluate how much more support they may require, because the margins in the international market are fixed and higher taxes may make them uncompetitive,” a commerce ministry official said, speaking under condition of anonymity.

Also Read: India is making its biggest tax reform far too complicated

The official said there cannot be uniform rates for textiles and gems and jewellery items as the products vary widely.

“For example handloom cannot be taxed on par with technical textiles as you need to encourage the labour intensive handloom sector. For handloom products, it should be zero,” the official said.

At present, taxes on textile products vary from 4% to as high as 60%.

Rahul Mehta, president of the Clothing Manufacturers Association of India in a note posted on its website wrote that from all the informal feedback the association has received, government is likely to impose 12% GST rate on the sector. “It is a pity that the government has not considered the industry fit to be taxed at the lowest slab of 5%, which would have given a tremendous boost to the industry. However, I do hope that our recommendation that the entire industry be taxed uniformly is accepted; failing which there will be huge issues of compliance, if not total chaos,” he added.

The Gem and Jewellery Export Promotion Council has demanded to fix GST rate at 1.25% for the sector with continuing exemptions for diamonds. The council, in a representation to the finance ministry, said the government should not let go the pre-eminent global position the industry has achieved by imposing a higher GST rate.

At present, most of the jewellery items are taxed between 2.5-3% and differs from state to state.

Kerala finance minister Thomas Isaac said in Srinagar that the state wants jewellery to be taxed at 5% against 1.5% that the industry has been demanding.

Also Read: GST impact: Hold back price hikes till rollout, Hasmukh Adhia tells companies

“Gold is a luxury product. It is not a necessity. Price of gold has quadrupled in the last one decade. Nobody had any problem. What is the big trouble with a 5% tax on jewellery. We are very reasonable people (at the Council). We will discuss,” said Isaac.

The government has aligned most of the goods and services in the five slabs of taxation—5%, 12%, 18%, 28% and 28% plus cess.

Revenue secretary Hasmukh Adhia in an interaction with CNBC TV18 said the GST rate for all branded products including textiles will be decided on 3 June. Though he said a final decision is yet to be taken on whether branded products should be treated differently from non-branded products, he suggested that manufacturers of branded products will benefit if a GST rate is imposed since they will be able to claim input credit.

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