Govt provides rebate on taxes to textile sector for apparel, made up garments

The Union Cabinet Thursday approved a scheme for the 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. Addressing a press conference here, 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 per cent support which was not available beyond December 31," Singh told reporters. 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.

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 per cent. We were facing acute competition in this business where profitability is quite marginal," Singh said.

The made-up segment of textiles includes products like bed sheets, 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 & made-ups manufacturers/exporters," Textiles Minister Smriti Irani said in a tweet.

She said the apparel and made-ups have a combined share of 55 per cent (around USD 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 the competitiveness of India's textile exports globally. The decision also entails a 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 & ensuring speedy disbursal," Irani said in another tweet. The decision will enable the government to take various measures for making exports of apparel and made-ups zero-rated.

"The proposed measures are expected to make the textile sector competitive. Rebate of all embedded state and central taxes/levies for apparel and made-ups segments would make exports zero-rated, thereby boosting India's competitiveness in export markets and ensure equitable and inclusive growth of textile and apparel sector," an official statement said. A senior official said under RoSL, in apparel, previously there was a maximum rate of 1.7 per cent which has been revised to a maximum of 3.6 per cent.

The rate of central levies on apparel was a maximum of 2.45 per cent which means effectively the rate on apparel has gone up from 1.7 per cent to 6.05 per cent. The official said for made-ups, previously the maximum RoSL rate was 2.2 per cent which has been revised to 5 per cent, plus central levies with a maximum rate of 3.2 per cent, taking the overall rate from 2.2 per cent to 8.2 per cent.

(With inputs from agencies.)