Garment manufacturers are apprehensive of an over 15 per cent drop in exports in 2017-18 to $14 billion, from $17 billion a year ago, because of a reduction in duty drawback reimbursement rate and rebate on State levies (ROSL) following the implementation of the Goods and Services Tax (GST).
Garment exporters, which employs over 12 million people, may have to retrench half the workforce by the end of the financial year if the government doesn’t redress the situation. The industry fears a 39 per cent drop in exports of garments in November as well. Sudhir Sekhri, Chairman at Garment Exporters Association, stated average profitability prior to GST was 4-5 per cent of the turnover. Due to reduction in drawback rate and rebate of state levies rate, they are losing 6.5 per cent of the profit.
Outsourced services like embroidery and knitting were initially taxed at 18 per cent but the rate was later lowered to 5 per cent. There was no tax on job work or outsourced services and air freight. That’s changed after GST. Air freight is taxed at 5 per cent. Exporters have urged the government to expedite refunds as it has blocked their working capital. Banks too are unwilling to lend. Borrowing more is hurting profitability.