Synthetic Textile Market Cries Foul On Inverted Tax Structure

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The Confederation of Indian Textile Industry (CITI) has once again tried to highlight the inverted tax structure in the synthetics sector. In a press statement, CITI pointed out the blockage of working capital in the sector, due to the absence of refund on input tax credit for all synthetic fabrics sold in the domestic market. This was because of the inverted duty structure, which makes rates on inputs higher than on the output.

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The chairman of CITI, Sanjay Jain expressed his concern, “At present, synthetic fibre is taxed at 18%, yarn at 12% and final output at 5%, creating a tax structure where rate on inputs is higher than that on output. This inverted structure has made it easier to import synthetic textiles, rather than manufacture them domestically. The main culprit behind the logjam is the complications posed by the inverted duty structure. Consequently working capital gets blocked for months together. Besides, there is no refund of GST levy on capital goods.”

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According to industry estimates,  imports were 15-20% cheaper for the domestic industry. There was a 3% drop y-o-y till November 2018 in export of manmade yarn, fabrics and made-ups. The reduced figure stood at US$ 371 million.

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