Garment exporters peeved as govt slashes duty drawback to 2%

Garment exporters are facing uncertain future with the government slashing duty drawback to two per cent from 7.5 per cent with effect from October 1. The decision has hit exporters hard as they were gearing up to start booking orders for the peak season.

Ashok G Rajani, Chairman, Apparel Export Promotion Council, told BusinessLine that the government has slashed the drawback on the pretext of GST but there are lots of taxes in the textile industry which are not covered under GST.

For instance, he said, there is no GST when cotton is sold to the yarn manufacturer. Similarly, the industry pays about six per cent embedded tax which is not covered under GST.

“The government cannot expect the industry to export our tax to other countries and still remain competitive in the global market. We have made a representation to the government to retain the drawback at the earlier level. Or else we will see a sharp fall in exports this fiscal,” he said.

Apparel export has been stagnating for the last few months due to intense competition from Bangladesh and Vietnam. In fact, garment export from Sri Lanka is gaining ground after it was accorded the preferential treatment to tap European market duty free. Indian exporters pay 10 per cent duty to tap markets in Europe.

India’s apparel exports to the US, the single largest market for India, has increased just 0.21 per cent between January and July to $2.33 billion. In contrast, exports from Vietnam to the US were up over 6 per cent at $6.52 billion during the same period.

A Sakthivel, Regional Chairman, Federation of Indian Export Organisations (Southern Region), said the industry has requested the government to continue with duty drawback and Rebate of State Levies scheme till it puts up the system for smooth reimbursement of iGST (integrated Goods & Services Tax).

The industry is facing huge funding problems with blockage of working capital due to delay in refunds.

“We have also appealed to the government to enhance the reimbursement of state taxes paid by exporters to 5.5 per cent (against 2-4 per cent offered now). If the government does not take a decision within a month, garments exports will fall drastically this fiscal,” he added.