In a welcome move, the government has addressed the issue of fibre neutrality in the recently announced Goods and Services Tax (GST) rates on textiles.
Fibre neutrality was a long-pending demand from leading trade associations, export councils, and local trade bodies of textile-centric states, though the target has moved from fibre to fabric.
While being a highly decentralised sector, textile is the country's second-largest employment generator, involving multiple processes — from fibre to garment. The product changes lots of hands till it is ready to be worn by the consumer. The involvement of a large number of people in different processes – as traders, jobbers, and convertors – requires a uniform rate of tax through the entire chain of conversion from fibre to ready-to-wear fashion garment. This issue needs to be addressed by the GST Council. Currently, the GST rate on fabric is fixed at five per cent, while at the job stage – such as processing, embroidery or other value additions (each of these being a manufacturing activity by itself) – it is deemed to be a service and, therefore, attracts 18 per cent tax.