GST Effect: Subsidy For Garment Makers Reduced Under Remission Of State Levies

Apparel, Footwear, Fashion

GST Effect: Subsidy For Garment Makers Reduced Under Remission Of State Levies

Garment exporters will henceforth get only a tiny fraction of the subsidy amount from the government they used to receive earlier for remission of state levies (RoSL) under the duty drawback scheme, since GST has subsumed indirect taxes at the states’ level.

RoSL, under which garment exporters get refunds from the Centre against all levies they pay at the state level, is the most important scheme in the Rs 6,000-crore garments package announced last year. The government has budgeted Rs 1,555 crore for the RoSL scheme in 2017-18.

Before GST was introduced, garment exporters used to get refunds ranging from 2.9% to 3.9% of the freight-on-board value of products under the RoSL scheme. Since most of the state levies, including central sales tax, have been scrapped in the GST regime, the government has decided to reduce it to an interim rate of 0.39% (upto September 2017), a senior textile ministry official has stated.

Only two state levies (value-added tax on petroleum products and electricity charges) will continue under the GST regime as well, on the basis of which the interim refund structure has been based, he stated.

Last year, the government initially provided around Rs 400 crore for RoSL and some of the claims pertaining to 2016-17 are being settled this year.

However, this development has prompted garment exporters led by the Apparel Exports Promotion Council (AEPC) to ask the Union Finance Ministry to restore RoSL rate at 3.9%, claiming that reduction in relief will adversely impact apparel exports. They also want the government to allow input tax credit on the GST paid on job work and stock transfer where drawback isn’t available.

In a letter to G K Pillai, Chairman of the Drawback Committee of the Finance Ministry, AEPC chairman Ashok G Rajani stated that the declaration and certificates will raise exporters’ compliance burden, as well as transition cost. This is because GST has been rolled out only recently and offices are not yet fully ready to provide additional certificates.

Rajani stated that as many as 80% beneficiaries of the RoSL scheme are exporters with a turnover of less than Rs 10 crore per year. Apparel exports have been registering double-digit growth since the start of the disbursement of RoSL (around December last year). During March and April, garment exporters were able to increase production by around 30% and employed at least 5% more workers during the same period, he stated.