GST blues: Tamil Nadu textile hub fears 20-30% MSMEs may shut shop

Illustration: Ajay Mohanty
Tirupur, a textile hub in southern Tamil Nadu, is worried about the 18 per cent Good and Services Tax (GST) rate fixed for different segments in the production chain. This will put pressure on the working capital of the job working units, forcing them to exit the business eventually and affecting the entire industry.

The sector expects at least 20-30 per cent of the city's units to close down due to practical difficulties. Tirupur's textile industry does business worth over Rs 50,000 crore every year, including revenue earned from exports. The industry also employs over 1,000,000 people.

Raja M Shanmugham, president, Tirupur Exporters Association, said that over 80 per cent of the units in the Tirupur cluster are dependent on the job works to carry out the various stages of garment manufacturing. The sequence of activates, from the yarn stage to garment, is knitting; bleaching; dyeing; calendaring or compacting; printing; garmenting; embroidery; and value-added activities like embellishment, glasswork, ARI work, thread work.

The product is normally transported from one stage of processing to the other at least five to seven times before getting packed for shipment or for domestic sales.

In almost every stage now, 18 per cent GST will be applicable.

GST may increase costs by around two-three per cent. However, the worry is not limited to costs, according to T R Vijaya Kumar, managing director, CBC Fashions (Asia) Pvt ltd. "Somehow, we can manage through refund or passing on to the buyer. The worry is over the fate of hundreds of micro and small units, which were never under any tax purview so far," Kumar explained.

South India Hosiery Manufacturers Association President A C Eswaran added that the 18 per cent GST rate on 'services' would affect the hosiery sector badly since most of the work in the production chain is usually outsourced by the main manufacturing units.

Such work is handled by cottage units, which mostly do not have any exposure to computers or paper works related to tax. "They are scared and worried due to GST. Assuming they can handle this, the biggest challenge is working capital that will lead to units closing down," said Eswaran, who owns the Viking textile brand.

"These units need to pay the tax every 7th of next month after GST, whereas their collection from vendors range from 60-90 days. This will lead to working capital burden," added Kumar.

"It will be unbearable for them to bear the brunt of such a high levy of tax," said Shanmugam.

K Selvaraju, secretary general, The Southern Indian Mills Association, said that the industry hoped that textile job work would be exempted from service tax. This is essential as most of these units are MSMEs and due to the predominantly decentralised nature of the industry, especially the powerloom, knitting, processing, and garmenting sectors.

Selvaraju stated that the 18 per cent GST rate levied on man-made fibre and synthetic yarn would have inverted duty structure problem as the fabric would attract only five per cent GST rate.

The association expects around 30-40 per cent stoppage of production in powerloom and garment knitting, which will put pressure on the industry.

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