Garment exporters seek better ‘zero rating’ under GST

Representatives of apparel exports met commerce minister Suresh Prabhu and sought certain changes in the tax reimbursement scheme under the current Goods and Services Tax regime.

Apparel exporters are eligible for reimbursement of various state and central taxes under two schemes meant to promote exports: Rebate of State Levies (ROSL) and Drawback (DBK).

However, they said, the reimbursement schemes, as they stand, are not effective as effective as before because of the system of ‘input credits’ under the GST. In other words, part of the tax paid by a manufacturer is at the time of purchasing the raw material, and not at the time of selling the finished product as was the case before.

Ashok G Rajani, Chairman Apparel Export Promotion Council, said such ‘zero rating’ of taxes on items meant for export — via reimbursing for taxes paid by manufacturers — is standard practice across the world, and Indian apparel manufacturers will find it difficult to compete with those from other countries if it is not continued under GST.

Direct subsidy to exporters are not allowed under World Trade Organization’s rules, but reimbursements for ‘zero rating’ are allowed.

Rajani said embedded taxes should also be refunded. These include GST, customs duties and excise charges on diesel consumed by the industry; taxes on electricity, stamp duties and registration charges, motor vehicle taxes, mandi taxes, green taxes, property taxes and so on.

“Zero-rating of exports as prescribed in the GST law will not be complete and will be limited to refunding of input taxes as there are a number of GST taxes, which are invisible and embedded in the FOB value of exports, given the design of the Indian GST.

“Therefore, it is important that the refund of the blocked GST taxes should not be seen as an incentive, but as an enabler of trade neutrality. The minister has assured us every best possible support for the smooth growth of industry and we are hopeful that he will look into the concerns raised by the Industry.”

India is among the top five exporters of garments in the world, after China and Bangladesh. The industry, concentrated in Tamil Nadu and Karnataka, employs tens of thousands of women, often in backward and rural areas.

It is considered the most effective way to create employment for a given investment.

The industry representatives also expressed worry about the strong rupee, which has made their products costlier in foreign countries.