Why GST needs amendments for Textile Industry

Krishna Goyal
Jul 10, 2017 · 8 min read

[Some fact checks — ‘The Indian textile industry is currently estimated at around US$ 108 billion is expected to reach US$ 223 billion by 2021. The industry is second largest employer after agriculture. It provides employment to over 45 million people directly and 60 million people indirectly. It contributes to approx 5% to GDP and 14% to overall IIP (Index of Industrial Production)’]

Textile Industry is on indefinite strike since June 27, 2017 against the decision to impose the new goods and service tax (GST). All power looms, weaving industries and major textile markets of India, namely Surat, Delhi, Kolkata, Mumbai, Bhiwandi, Jodhpur, etc are totally closed. They are asking government to increase tax on yarn as much as they want [Currently 18%] but withdraw GST imposed on manufacturing, processing and trading activities for at least 18–20 months. They also said that the provisions of penalties, prosecution, and imprisonment are very harsh under GST, and since there is always a possibility of making an error, it is wrong to fix harsh punishment for this.

Traders of Surat are leading this protest as 65–70% of industry depends on them for raw material. Protest intensified after police baton-charged peacefully protesting traders on July 4, 2017. There was a huge rally comprising of more than 1 lakh traders on July 8, 2017. Yet, not a single media covered such a large demonstration. In fact, a wrong propaganda is being spread on social media that these traders want to evade tax, hence protesting. Imposition and implementation are 2 different things. I would like to cover most of the problems faced by traders in this article which can be foreseen for now at least.

I will quote problems one by one.

•​GST- ONE NATION ONE TAX? : GST is anything but One Nation One Tax. There are not only 5 tax slabs, but a single product also falls under different tax categories. For Example: Cotton, Quilts and Covers are in different HSN Codes. Cotton quilt (HSN 9404) has 18% tax, Fibre Quilt has 28% tax. GST on Blankets (HSN 6301) below Rs. 1000 is 5% and 12% on the rest. Cover falls under HSN 5811 which has 12% tax.

•​HSN Code: HSN code is a mystery itself. It will be hard to determine HSN code for hundreds of varieties in Textile Industry. Wrong HSN code will make you pay heavy penalty or can also lead you into Jail.

•​Neither Indian economic, geographic and social structure is suitable for GST nor is government infrastructure. When government has not been able to provide a very basic necessity like electricity, transportation and even toilets in some areas, how can it expect illiterate traders of same areas to comply with GST?

•​Let’s understand basic procedure every product undergoes in Textile industry first.

Yarn -> Grey->Trader
Trader->Mills
Mills->Trader
Trader->Embroidery
Embroidery->Trader
Trader->Diamond/Lace/Any work
Diamond/Lace/Any work ->Trader
Trader->Roll Press/Finishing
Roll Press/Finishing ->Trader
Trader->Box Packing
Box Packing ->Trader
Trader->Trasport
Transport->Wholesale Supplier
In total, 27 Entries and 15 GST Challans for one product. Moreover, there are up to 4 brokers in between which I’ll omit to make it less complex.

​Job Workers (Kaarigars): Who are karigars? Karigars are small workers who do various hand work and machine work. A lot of women in rural and urban areas also fall under this category. They are illiterate and cannot understand the structure of GST. How can one expect them to keep accounts and file computerized returns every month? For these job workers to keep up-to-date with GST laws and use computers in order to comply with the GST system is neither feasible nor possible. They’ll stop working. If not, most of them are not registered. Trader has to bear service cost levied on these job workers, i.e. he’ll have to pay tax in 15 GST Challans as mentioned above.

•​Input Credit: [Anyone supporting GST must know what input credit is. If not, please refer GST website for the same.]
Suppose a product reaches from manufacturer to consumer in 5 stages. There is always a possibility of making an error. In case of mismatch, or missing of filing return, trader has to bear whole GST cost on his own. He might face a jail term in worst case. •Composition Scheme: A person who takes the benefit of composition scheme will always be at loss. Such trader has to bear additional cost of 7%. Firstly, you cannot charge GST from consumers. That is 5% cost. Secondly, you have to give additional 2% of total sales to the government as tax. Hence, cost of the product will increase. And you won’t be able to survive the fierce competition in the market. Business will be overtaken by bigger players.

​Sole Proprietorship: Most of the traders are sole proprietors and carry all business activities on their own. They are on tour for 10 days in a month for buying and payment collection. How will they file return 3 times a month? They will get totally lost in complexities of GST and will not be able to pursue business.

•​Infrastructure: There is a huge number of small-time shopkeepers in textile who have such small shops that they barely have a space to sit and keep all their goods. It is in no way possible for them to install computers in their shops just for the sake of filing tax. There are traders in remote villages, who cater to the farmer-consumer. Every businessmen will require Computers, printers, Internet, software’s, accountant and CA in any case

•​COST of CA and accountant: Only 5% increase in price is again a myth. There will be additional expenditure of 1lpa once GST is implemented. This cost will be included in price of the product. All the taxes at various stages will also be added to the cost of the product. For 5% GST category there will be approximately 12–13% increase in price. Consumer has to pay this price. Why will businessmen protest to evade this tax? He will pass on to customers. Buying Capacity will certainly decrease but that is least of the problems for now.

•​Credit Mode: Textile industry completely works on credit mode. When a trader sells a product, his payment comes generally in two months. But he has to pay tax on the product as soon as he sells a product. How trader will arrange capital when he hasn’t received his payment yet? Small traders with less capital won’t survive. Many times receiving party returns unsold products even after a year. Trader has already paid tax on the product and now has to bear loss of both tax and product. How that tax will be returned?

•​3 returns per month: Government is misleading people that there will be only one return per month, rest will be auto generated. The reality is- There are three returns: Purchase, Sell and Amendments. It will be hard to file all three in one single day. As not just invoice details but every product entry is required. Even if all this could be done in one day, there will be mismatches due to plausible mistakes made by rural clients. Many times, prices are renegotiated after delivery of products due to numerous reasons. Hence, 3 returns will be unavoidable.

•​Waste Products: Textile is industry where at least 5% of the raw product goes waste during dyeing, printing, any other work. You have already paid tax on this 5% raw product which is now waste for you. How will you claim that tax back?

•​Maintaining stocks: Textiles generally comprises of hundreds of varieties. Trader will have to maintain stock on stock value and no. Of pieces now. Sometimes, products bought @per metre value are sold at per piece. When some product goes out of trend, it is divided into 3–4 segments and then these segments are combined with other new products to make something according to the current trend. This is quite prevalent practice citing frequent change in fashion trends. How will that happen now? People buy few metres of cloth out of a 100m roll. There will always be leftover in the end. Keeping track of every metre will be a head ache in itself. Trader has to bear cost of Tax as well as dead stock in the end.

•​Inspector Raj: These provisions would encourage the settling of personal vendetta by government officers, and give rise to inspector raj.

•​Turnover: Finance Minister of India gave statement in one of his interview, that if a person has turnover of 1cr, he can afford a CA and accountant. Can someone tell him, turnover is different from profits? Generally, NP of 3–4% is maintained. Even government considers 8% NP when no audit is done. After all the hard work, giving employment to so many people, paying taxes in all the intermediary activities and products, leaving all his comfort, paying Income tax on this 6–7 lakhs of income per year, it is completely unjustified to call a businessman a Tax-evader by government authorities publicly. No businessman wants to evade tax. Our economic infrastructure is a mess. You can save a lakh more by black transactions[not income], but cannot become ambani/adani. You become rich when you fool government, banks and public through IPO’s, loans, real estate etc. That is different topic altogether. On one hand, you are preaching about ease of doing business and Make in India. On other hand, you are killing all your existent businesses. Government should know that no foreign investment can compensate loss in local business.

•​180 days Payment Cycle: If a trader does not receive his payment in 180 days which is very common, he’ll have to pay reverse charge as tax by generating another invoice. If you charge interest on payment after 180 days, you’ll have to pay GST on the interest too.

•​Generation of Invoice: Every invoice must comprise of GST no. of Receiver and its full details. In case of failure, trader has to pay that tax.

•​Net Banking: If your GST tax is more than 10000, you’ll have to transfer tax through Net Banking, cannot do it via cash or cheques.

•​There are more provisions regarding invoice of more than 50k amount, etc. But they can be left as if these problems are resolved, those won’t be issues anymore.

Have you ever wondered why the educated Youth of India is not interested in these businesses? They prefer to work in MNC’s even when they can generate jobs and make people work for them. Because they want to live a life. Doing business in this highly competitive environment is mammoth task itself. People invest all their savings and profits for many years. They toil hard 24*7. Every manufacturer provides employment to at least 50 people. They readily attend clients even at 11 in night or 7 in morning. Holidays are complete NO for them. They hardly have any time for family, friends.Still, they are ignored…They should also opt for 9 to 6 jobs, enjoy time with family, go on vacations. Giving employment is government’s job. Why should they worry about it?

Textile sector was never levied any kind of tax — service tax, VAT or excise. GST makes no sense. Traders have been given no training about GST, and penalty and punishment for non-compliance is harsh and frightening. All these complexities are beyond comprehension by normal traders. Government must reason with them, not suppress them.

Therefore, Textile industry pray to the government that a solution to this problem be found, in order to avert the irreparable loss, which will be caused after GST is imposed on them

Welcome to a place where words matter. On Medium, smart voices and original ideas take center stage - with no ads in sight. Watch
Follow all the topics you care about, and we’ll deliver the best stories for you to your homepage and inbox. Explore
Get unlimited access to the best stories on Medium — and support writers while you’re at it. Just $5/month. Upgrade