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January 3, 2020

India tax breaks fail to deliver garment export boost

Indian apparel exporters fear losing business – and even being forced to close some units – over the failure of the government to pay promised tax benefits since March 2019, which are now said to amount to more than US$710m.

Indian apparel exporters fear losing business – and even being forced to close some units – over the failure of the government to pay promised tax benefits since March 2019, which are now said to amount to more than US$710m.

“It is affecting the industry very badly as exporters are not able to calculate at what rate to book the new orders,” Chandrima Chatterjee, an advisor at the Apparel Export Promotion Council of India (AEPC), told just-style.

Last March the central government announced benefits for garment exporters under the Rebate of State and Central Taxes and Levies (RoSCTL) on the ‘export of garments and made-ups,’ along with other scheduled import duty suspensions (called drawbacks) on imports, and exemptions on taxes for fuel, electricity, legal documents and fertilisers for cotton production. Collectively, these benefits made up more than 9% of the value of the exports, APEC says.

Despite the RoSCTL being officially notified through the Gazette of India by the ministry of textiles, the government has not explained the non-payment or said when, or even if, the benefits will be paid in full. “There is some difference of opinion between the ministries of textiles and finance,” Rahul Mehta, president of the Clothing Manufacturers Association of India, told just-style, adding: “The matter is now with the Prime Minister’s office.”

According to Mehta the situation has caused a severe shortage of working capital for clothing manufacturers, making it difficult for them to even place orders for raw materials. 

The tax rebate is critical for Indian garment exporters, according to Sudhir Dhingra, chairman and managing director of Gurgaon-based clothing manufacturer Orient Craft Ltd, who says the sector’s average profits are only 5% of sales, and so needs the rebates, especially companies struggling to make ends meet. “It is almost nine months that companies are out of cash and [some have] negative balance sheets,” he told just-style.

Dhingra predicts that the current problem will reduce garment exports from India. Already, these have been falling every month since August, with the Directorate General of Commercial Intelligence and Statistics saying November clothing export shipments from India were US$1.06bn, down 6.52% compared to November 2018.

The orders that Indian companies miss are likely to go to Bangladesh, says Chatterjee. “In fact, the [RoSCTL] scheme was started because we were losing out to Bangladesh, “but we have not been able to leverage it.”

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