Around Two-Fifths of the Readymade Garment Industry to Face 2% Excise Levy

The financial year 2016-17 is knocking, and Finance Minister, Mr.Arun Jaitley has announced the budget. The budget hold quite a few changes for the textile industry on the whole, but the most glaring of them all is the proposal to levy excise duty of 2% on all readymade garments as well as made up textile articles, the retail price of which are Rs. 1000 and above.

While this move was uncalled for, as seen by the manufacturers as well as the branded retail chains and other outlets, it is essential to understand that this duty is applicable only on those manufacturers who do not claim the Central Value Added Tax (CenVAT) or the Input Tax Credit on raw materials. However, manufacturers who did claim the Input Tax Credit will be required to pay an excise duty of 12.5%. As of the current year, for manufacturers without ITC claim, the excise duty was nil, and for those with claim it ranged from 6 to 12.5%.

Mr. Rahul Mehta, the President of the Clothing Manufacturers’ Association of India (CMAI), expressed his disappointment on the new levy given the fact that the industry is not going great at the moment. Moreover, even the Goods and Services Tax is in talks and can be implemented any-time soon, and hence the introduction of this duty makes all the less sense.

The budget also brought along the proposal of making increase in  the tariff value for calculating Countervailing Duty (CVD) or excise from a fixed 30% to 60% for readymade garments and made-up articles of textiles.

The excise duty on polyester staple fibre and polyester filament yarn has also been increased from 6% to 12.5% for manufacturers who claim the Input Tax Credit. In this case, for manufacturers who do not claim the Input Tax Credit, the duty will remain at the existing 2%. This will mean that over 40% of garments will now come under excise duty.

Thankfully, the customs duty on certain specific yarns and fibres has been reduced from the existing 5% to 2.5%. In addition to it, the basic customs duty on the import of certain specific fabrics have also been reduced to nil, however, only in the case when they are to be used for manufacturing garments for the purpose of export.

While it not all seems rosy at the moment, the government’s goal to increase farm income to almost double within the next 5 years will definitely benefit the industry in the long run.