The Ministry of Textile on 22nd November 2021 has notified uniform goods and services tax rate at 12 % on MMF, MMF yarn, MMF fabrics and apparel that has addressed the inverted tax structure in the MMF textile value chain. The changed rates will come into effect from 1st January, 2022. This will help the MMF segment grow and emerge as a big job provider in the country.
The GST on MMF, MMF Yarn and MMF Fabrics were 18%, 12% and 5% respectively. The taxation of inputs at higher rates than finished products created build-up of credits and cascading costs. It further led to accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry.
Though there is a provision in GST law to claim the unutilised Input Tax Credit (ITC) as a refund, but there were other complications and resulted in more compliance burden. The inverted tax structure caused effective increase in rate of taxation of the sector. The world textiles trade has been moving towards MMF but India was not able to take advantage of the trend as its MMF segment was throttled by inverted tax regime.
