Textile traders from Surat, Gujarat want fabric and job work to be exempt from Goods and Service Tax (GST). They are fine with the 18 per cent GST on yarn but are opposed to any tax on fabric. They also say it won’t be possible for retailers to comply with GST regulations.

They say the sector is predominantly unorganised and any attempt to convert it into an organised sector at one go can potentially destroy the sector. If this happens, they fear that instead of an expected rise in the country’s GDP, the economy will take a hit, creating job losses on a massive scale.

Under GST, manmade fiber yarn will be taxed at 18 per cent while its end product, fabric, will be taxed at five per cent. Tax differential leaves integrated textile firms which produce yarn and use it to make fabric at an advantage over those which buy yarn to make fabric. Also, cotton made yarn and fabric will attract five per cent duty.

This imbalance is expected to hit small textile companies which buy manmade yarn to weave fabric. In addition, since imported fabric will attract 15 per cent effective duty, cheaper Chinese goods may also pose a serious threat.