Apparel exporters have stated that nearly half of 12.9 million people employed in the US$ 17.5-billion industry may lose their jobs as one of India’s apparel manufacturing sectors struggles to recover from the disruption caused by the Goods and Services Tax (GST).
According to Okhla Garment and Textile Cluster President PMS Uppal, many factories in Jaipur (Rajasthan), Ludhiana and neighbouring areas have already shut down and almost 30% of export units have shut in the hosiery hub of Ludhiana in Punjab. He said that six million employees may lose jobs this financial year.
Exporters said that production costs have risen because of new levies on air freight and outsourced work even as delayed refunds of taxes paid on inputs have added to their pain. Apparel shipments have declined by 39.2% in October over the same month last year, Uppal said. In April-October, they were down 5.8 per cent and are expected to fall by 15% to 20% in the year until March, he said.
Former president of the Institute of Chartered Accountants of India Ved Jain said that apparel exporters were not required to pay tax on several inputs earlier, but now GST taxes inputs and reduces incentives like drawbacks, which has hit garment exporters. Reducing input costs and higher incentives will help the industry, he said.
The duty drawback, or the rate at which taxes on imported inputs are refunded, was brought down to 2% from 7.5%. The rebate on state levies was also lowered to 1.7% from 3.5%.
Garment Exporters Association Chairman Sudhir Sekhri said that the average profitability prior to GST was 4% to 5% of the turnover. He said that due to reduction in the drawback rate and rebate of state levies rate, the industry is losing 6.5% of the profit, while order books are expected to contract by 10% in the year until March.
Before GST, there was no tax on job work or outsourced services and air freight. After GST was implemented, air freight has been taxed at 5%. Similarly, outsourced services like embroidery and knitting were initially taxed at 18% but the rate was later lowered to 5%.
Recently, the government also increased the duty benefit under the Merchandise Exports from India Scheme from 2% to 4% to help garment exporters but that has not helped much.
Despite this initiative, the industry is worse off by around 4% to 5% as compared to the pre-GST era considering the impact of change in tax rates, input credits and export incentives, according to tax consultants.
Over and above this, refunds for taxes paid on inputs have still not been released. Apparel exporters have urged the government to expedite refunds as it has blocked their working capital.
Banks too are unwilling to lend while borrowing more is further hurting profitability, according to Mumbai-based apparel exporters.