GST to lead expansion of Tax Base

GST to lead expansion of Tax Base

The extension of the GST to both fabrics and apparel is expected to lead to a very substantial expansion of the tax base. Assuming even a modest compliance in the sector, a 5 per cent GST would generate revenues to the tune of Rs. 11,000 crore, a three-fold increase over current revenues from the sector,according to industry leaders.

There is virtual consensus in the industry for seamless application of the GST throughout the supply chain at a moderate uniform tax rate, without any exemptions at any point in the supply chain.

It provides a historic opportunity for simplifying the tax structure and promoting fibre neutrality, innovation, technology development and productive efficiency in the sector. It can play a central role in accelerating growth in the domestic market, thereby enabling India to become a significant player in the international markets.

Industry veterans said an extension of the GST to both fabrics and apparel is expected to lead to a very substantial expansion of the tax base. Assuming even a modest compliance in the sector, a 5 per cent GST would generate revenues to the tune of Rs. 11,000 crore, a three-fold increase over current revenues from the sector. A low uniform GST rate would also encourage voluntary compliance and get rid of all competitive distortions arising out of the current differential tax regime.

Indications are that the GST Council is in general supportive of this structure. However, some sections wish to continue the preferential tax regime for cotton fabrics and for unbranded garments. Whatever the merits of such a differential tax regime, it would be bad politics and bad economics. Historical experience shows that selective application of tax to this sector at higher rates would encounter significant political resistance, be perceived as inflationary, be subject to leakages, and be detrimental to job creation and growth of the sector, Experts feel.

–¬†Apparel and Textile News, Apparel Talk, Indian Apparel