Foreign buyers cheer GST on knitwear, seek low prices

Global buyers are regularly calling suppliers in the buzzing town of Tirupur, India’s biggest knitwear hub that boasts Rs 25,000 crore exports every year.

International callers, familiar with GST benefits, are very clear about what it means for them. “They want a cut in prices,” says S Sakthivel, secretary of the Tirupur Exporters Association. The knitwear industry is clear about long-term benefits, but Sakhtivel also has other callers: Exporters want details about tax implications for the industry that has numerous workers and units involved in different parts of the chain such as printing, embroidery, washing, dyeing etc, which are taxed at 18%, while jobs related to yarn and fabric enjoy a 5% rate.

They are still coming to terms with the new system. “We are caught between buyers and suppliers not knowing what to do,” he rues although the industry is cautiously optimistic about GST.

In the southern states, the optimism is shared by many. Several businesses in Kerala are happy as they depend on other states for supply of many consumer goods,
poultry, cosmetics and other items; pump manufacturers in Coimbatore, the country’s biggest hub of the industry, are happy their tax rates haven’t changed much and all firms are gaining from easier truck movement although they are concerned about the nitty-gritty of the new tax. At Tirupur, apart from the massive export orders, domestic knitwear sales amount to another Rs 12,000 crore.

“Unlike for exports we don’t get input credit for domestic sales. So the 18% tax for job works will have to be borne by the manufacturer which naturally will raise the
manufacturing cost and affect the fund flow. Unless all the works are brought under a single slab of 5%, we have no option but to pass it on to the consumer,” said Raja M Shanmugham, a leading exporter and the president of the association. Shanmugham says nobody has a clear picture of GST. “Our suppliers are confused.

They approach us and when we need clarification we go to tax oxfficials. But even they cannot give us the solution. They refer to the higher authorities,” he said.

The industry has been expecting a sales boost after the GST for readymade garments below Rs 1000 was fixed at 5%, some are concerned about flood of imports. “Higher cost of Tirupur garments may make the big retailers to turn to cheaper ones from Bangladesh, which has already captured 25% of the market in the country,’’ says T R Vijayakumar, who heads CBC Fashion Asia Pvt. Ltd.

The pump and motor manufacturers in Coimbatore are not unduly worried about GST as the 12 % and 18 % slabs for each are only 0.5% higher from before. Incidentally, Coimbatore accounts for 45% of total pumps and motor production in the country amounting to `3,500-4,000 crore yearly. The problem again is job works by vendors, which is taxed at 18%. “Though with a business below Rs 20 lakh are exempted from GST. We insist they pay which can be later adjusted against input credit.

Otherwise the reverse charge procedures are cumbersome,’’ says Jayakumar Ramdas, managing director of Mahendra Pumps. If the small units do not pay, then the
manufacturers may turn to registered vendors.

Economic Times New Delhi, 10th July 2017