The Union Cabinet approved a scheme for rebate of all state and central embedded levies for apparel and made-up textile segments, which would make shipments zero-rated, thereby boosting the country’s competitiveness in export markets.
Textiles Secretary Raghvendra Singh said the decision was needed as incentives for apparel and made-ups under the Merchandise Exports from India Scheme (MEIS) were not WTO compatible anymore.
“The MEIS scheme offered 4% support which was not available beyond December 31,” Singh said.
He said rates under the Remission of State Levies (RoSL) have been revised upwards for garments and made-ups, and centrally embedded levies outside the ambit of GST have been added to the scheme, which will “more than offset” incentives not available under MEIS for apparel and made-ups.
Under RoSL, in apparel, previously there was a maximum rate of 1.7% which has been revised to a maximum of 3.6%. The rate of central levies on apparel was a maximum of 2.45% which means effectively the rate on apparel has gone up from 1.7% to 6.05%. For made-ups, previously the maximum RoSL rate was 2.2% which has been revised to 5%, plus central levies with a maximum rate of 3.2%, taking the overall rate from 2.2% to 8.2%.
The decision assumes significance as shipments from neighbouring countries like Sri Lanka, Bangladesh and Vietnam enjoy zero duty access to the EU, which is the biggest export market for India’s apparel sector. “However, our exports to the European Union have to face a tariff disparity of around 9.6%. We were facing acute competition in this business where profitability is quite marginal,” Singh said.
The made-up segment of textiles includes products like bedsheets, blankets and curtains. “Our endeavour will also be to extend these benefits to exports of fibre, yarn and fabrics. A committee will be set up to examine if similar incentives can be extended to these segments,” Singh said.
According to him, the revenue foregone estimate due to the decision has been pegged at Rs 6,300 annually.
The inter ministerial committee as well as the norms committee of the Department of Commerce shall from time to time assess the impact of this decision and tweak it wherever needed, Singh said.
Currently, Remission of State Levies (RoSL), which is to offset indirect taxes levied by states such as stamp duty, petroleum tax, electricity duty and mandi tax that were embedded in exports, is provided to textiles exporters.
“The decision which also extends rebate up to March 31, 2020, will greatly benefit apparel and made-ups manufacturers/exporters,” Textiles Minister Smriti Irani said in a tweet.
She said apparel and made-ups have a combined share of 55% (around US$ 21 billion) in the total Indian textile export basket and the decision to enhance rebate will have a direct impact on these segments, thereby increasing competitiveness of India’s textile exports globally.
The decision also entails change in disbursal mechanism whereby the rebate of all embedded state and central levies will be done through the Scrip System. “Fulfilling one of the primary demands of the industry, Rebate of State and Centre Levies/Taxes will be done through IT-driven Scrip System thereby preventing delay and ensuring speedy disbursal,” Irani said. The decision will enable the government to take various measures for making exports of apparel and made-ups zero rated.