The sharp reduction drawback rates announced by the government for textile and clothing products may slow down exports of these goods, according to the industry.
The drawback rate announced for garments is 2% as against 7.7% earlier. In the case of made-ups, it was 7.3% and has been reduced to 2% now.
‘Working capital issue’
The Excise and Service Tax components have been subsumed under the Goods and Services Tax and only the basic Customs Duty is refunded under the drawback scheme. This was on expected lines. But, the reduction in drawback rates is steep and the GST system is not working as expected, said industry sources. There is a delay in refund of the input tax under GST.
Annual textile exports have been stagnant for the last three years at about $37 billion. The reduction in drawback rates will become another contributing factor to slow down exports, said sources.
The government should extend the transitional provision for duty drawback and Rebate of State Levies (ROSL) till the end of March next year, said industry representatives.
“A major area of concern for exporters is the inordinate delay in refund of GST,” said Ujwal Lahoti, chairman of the Cotton Textiles Export Promotion Council. “Exporters who shipped their goods in July are yet to receive refund of input tax credits or IGST paid. This has caused serious working capital problems for a large number of exporters,” he added.
Currently, the ROSL scheme provides for refund of State levies on export goods for garments and made-ups.
However, the scheme does not cover the embedded State levies, such as electricity tax and market cess, from fibre to made-ups, he said.
The Apparel Export Promotion Council said it was in consultation with the drawback committee and the ministries concerned for consideration of several embedded and blocked taxes that are not covered in GST or drawback. The industry was expecting continuation of the present drawback rates till the consultations were completed. The low drawback rate announced for apparels is a blow when the industry is facing continuous decline in exports, said the council in a press release.
The Union Government announced a special package in 2016 to boost garment and made-up exports and enhanced the drawback rates and ROSL under it. The reduction in drawback rates now removes the benefits for exporters. The Government should have a re-look at the drawback rates for textiles, said chairman of Southern India Mills’ Association, P. Nataraj.
There is 7%-8% month-on-month drop in ready-made garment exporters and the main reason cited is appreciation of rupee against the dollar. When exports are already under stress and when the industry is not clear on the input tax credit that would be available, the industry should be supported, added Prabhu Dhamodaran, secretary of Indian Texpreneurs Federation.
