Finance Minister Nirmala Sitharaman will have pre-budget consultations with States on December 30. Though this is not the meeting of GST Council, it is expected that States will raise the issue of the new GST regime for textiles which is coming into effect from January 1.

States say they have received numerous representations from various trade and industry bodies expressing concerns about the new GST structure for textile.

As decided by the GST Council in its meeting on September 17, a uniform rate of 12 per cent will be applicable on various textile products — including ready-made garments — from January 1. As on date, ready-made garments with MRP below ₹1,000 attract GST at 5 per cent while those with MRP over ₹1,000 are taxed at 12 per cent.

Tarkishore Prasad, Deputy Chief Minister of Bihar, said he would initiate a dialogue with Sitharaman separately on the day of pre-budget consultation.

“We have received many representations on this issue and would like to discuss in detail,” he told BusinessLine . Prasad, a senior BJP leader, represents his State in the GST Council.

‘Lose 15-lakh jobs’

On Friday, Amit Mitra, Principal Chief Advisor to Chief Minister and Finance Department, West Bengal, made a strong plea for a GST Council meeting at the earliest and reversal of the decision to increase GST rate to correct the inverted duty structure in footwear and textiles. According to Mitra, the 7 per cent additional GST would lead to the closure of an estimated one lakh small size units and render close to 15 lakh people jobless.

The textiles sector is estimated to be close to ₹5.4-lakh crore, over 80 per cent from natural fibres such as cotton and jute. The sector employs approximately four crore people.

“The 45th meeting of the GST Council did not discuss this matter at any depth. It is estimated that one lakh small units will close because of this 7 per cent additional GST. Job loss, including ancillaries, is estimated to be close to 15 lakh,” he said while claiming the estimated one lakh units may choose to become informal and go out of the tax purview.

Many MPs and political leaders have also made representations to the Finance Ministry to reverse the decision.

Officials say any change will be possible only if the GST Council agrees to it. However, as on date, the new system will come into effect from January 1.

Inverted duty structure

The GST Council changed the levy system in order to do away with inverted duty structure (IDS) — a higher duty on inputs and a lower levy on finished products. This results in a higher refund to industry which affects the cash flows for companies and revenue collections for the government. Also, consumers do not gain anything,

According to sources, the lower duty on finished products creates an inversion and consequently, the annual refund amount exceeds ₹4,000 crore.

“The amount is expected to grow considering that in the first year (of implementation of GST), refund of accumulated ITC (input tax credit) was not allowed,” a source said.

The Textile Ministry too had pitched for removing the inversion to free the sector from the burden of taxes, including accumulated ITC.

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