CITI asks for end to textile industry’s inverted duty structure

By

Isabelle Crossley

Published
Feb 7, 2019

The Confederation of Indian Textile Industry has spoken against the current inverted duty structure in India’s textile manufacturing industry where duty applicable to synthetic fibres is higher than that applicable to the output.

“At present, synthetic fibre is taxed at 18%, yarn at 12% and final output at 5%, creating a tax structure where rate on inputs is higher than that on output,” Sanjay Jain, chairman of CITI, said as reported by ET Bureau. “This inverted structure has made it easier to import synthetic textiles, [rather] than manufacture them domestically.” 

Despite the permitted refunds of inverted duty; the process of obtaining them is so complicated that it creates months of working capital blockage, Jain added.

“Goods and services tax [GST] on capital goods is not refunded,” explained Jain. “The refund rule needs to be rectified.”

ET Bureau cited industry estimates that it is between 15 and 20 percent cheaper for businesses to import manmade yarn fabrics rather than source them domestically. This led to a three percent year-on-year drop in the export of such fabrics in November 2018.

With businesses finding it cheaper to import synthetic textiles for the garment manufacturing industry rather than source domestically, this contravenes the government’s plan to increase domestic production. CITI awaits a response to its plea.