The Union Ministry of textiles is reportedly opposing the idea to bring back the excise duty on branded garments in India. After the publication of Return of Excise Duty on branded garments news in print media, The South India Garment Association wrote a letter to the Honb’le Finance Minister Sri Arun Jaitley regarding the reconsideration for this decision.

What is Excise Duty ?

What is an Excise Duty? Why it should not be considered? In the Indian Tax structure, there are a lot of taxes that people pay for different reasons. Income tax, Sales tax, entertainment tax , etc. All these taxes are existent because some how it impacts and helps in economy. One such tax that is prevalent in any manufacturing sector is Excise Duty .

An Excise Duty (Excise or Excise Tax) is a type of tax charged on goods produced within a country. It is an opposed to custom duties, charged on goods from outside the country. Normally it is a tax on the Production or sale of a good. This tax is known as Central Value Added Tax (CENVAT). Through this tax is to augment as much as revenue to the Government to provide different public services.

Effect of Excise Duty:

Excise duty is the tax for any manufacturing industries for production or sale of goods. But this tax have certain positive and negative impacts on Economy as well as in Indian Manufacturing sectors. According to Rahul Mehta, the President of Clothing Manufacturers Association of India, Since 70 percent of of the industry is in the small scale sector, the return of Excise Duty will be a major deterrent to their survival and growth.

Historical Reference :

In 2004, Excise Duty was removed being its deep negative impacts on garment trade and industries. Excise duty was imposed by that time finance minister Sri Jaswant Singh in 2002. A 10 percent excise duty on branded garments was levied in Budget 2010-11 by then Finance Minister Pranab Mukharjee. He increased it to 12 percent in Budget 2012-13, with 70 percent abatement. After deeply evaluation the situation, Sri Chidambram removed the excise duty from the branded garment in 2004 as well as in 2013-14 Budget. As a result, the exchequer took a hit of Rs 1,300 crore. Again in 2011, Sri Pranab Mukharjee re-imposed but removed again within two years 2013. Within two years of Excise regime garment industry suffered deep impact and many small and medium garment manufacturers closed leading to huge un-employment specially women.

In this representation to Ministry of Textiles, CMAI has said, “Nearly 50 per cent of a brand’s annual sales are made at discounted rates, of 30-70 per cent. However, excise duty, levied at the time of dispatch from the factory, is calculated on the full price. Therefore, the burden of excise on the consumer is nearly twice intended level.”

Why the Advocates of Excise Duty on Branded Garments should Reconsider their decision? 

Excise duty on branded garments have some negative impacts on manufacturing sector for which the advocates of Excise Duty should reconsider on their decision. Here are some key points.

Non-Polluting, Low Power Consuming with Job opportunity:

As we all know that garment industry is known as the Non-polluting industry which consumes low power than other manufacturing industries. But this industry creates a huge job opportunities for the unemployed persons specially for Women. A lot of people get jobs which puts effect on the poverty line. Government is aware of this fact that garment manufacturing industries are one of the most labour intensive sectors and there is a huge opportunities for employment.

Fashion Cycle Base:

Different Fashion Driven Industries have various complexities attached with the garment manufacturing industries. Multiple movement during the manufacturing process, high risks of rejection of products, discounts puts some negative effects  on these industries.

Competitions from neighboring countries:

In this competition era, competition is high on garment manufacturing sector. Specially Bangladesh have build garment industries to make its economy strong. Now Bangladesh is in Number 2 position in Garment and Textile Trade. Bangladesh is shifting its manufacturing activities to its neighboring countries like Nepal, Sri Lanka, Thailand.

Government Schemes and Incentives:

Government Provides various schemes, incentives and subsidies to different garment sectors for developing the manufacturing and to create job opportunities. But if the excise duty will bring back to the garment sector, then this step may affect the growth of garment industries and cause of unemployment.

Transit to GST: 

GST Stands for Goods and Services Tax. We are heading towards the GST regime, Bringing back the Excise Duty (Excise Tax) on garments may lead to huge confusion and great fall will down size garment manufacturing sectors which may impact on employment.