Hours before the new GST rate was to take effect, the GST Council  has decided to temporarily roll back the increase in tax rate for the textiles sector.

What was the proposal?

• The GST Council had recommended making certain rate changes for footwear and textiles to correct the inverted duty structure.

What is Inverted Duty Structure?

• An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs.
• This creates an inverse accumulation of input tax credit which in most cases has to be refunded.

A loss for the govt

• Inverted duty structure has implied a stream of revenue outflow for the government prompting the government to relook the duty structure.
• For footwear, the government refunds around Rs 2,000 crore in a year.

What is the present rate of GST on textiles?

• At present, tax rate on manmade fibre, yarn and fabrics is 18%, 12% and 5%, respectively.
• Apparel and clothing up to Rs 1,000 per piece currently attracts 5% GST.

Issues with the tax increase

• This decision has created a negative impact resulting in drop in demand and recession.
• The new rate structure would cause closure of around 1 lakh textile units and losses of 15 lakh jobs nationally.

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