New Delhi: The Commerce Ministry fears that a higher than expected goods and services tax (GST) rate on gems and jewellery and textiles products may make such exports noncompetitive and exporters may have to be compensated.

The two items are among six on which GST rates could not be finalized in the 14th GST Council meeting in Srinagar and a decision was deferred for the next meeting on June 3.

“After GST rates are imposed, if the tax rates increases on textiles and gems and jewellery sectors, then we have to evaluate how much more support they may require, because the margins in the international market are fixed and higher taxes may make them uncompetitive,” a Commerce Ministry official said, speaking under condition of anonymity.

The official said there cannot be uniform rates for textiles and gems and jewellery items as the products vary widely.

“For example handloom cannot be taxed on par with technical textiles as you need to encourage the labour intensive handloom sector. For handloom products, it should be zero,” the official said.

At present, taxes on textile products vary from 4 per cent to as high as 60 per cent.

Rahul Mehta, President of the Clothing Manufacturers Association of India in a note posted on its website wrote that from all the informal feedback the association has received, government is likely to impose 12 per cent GST rate on the sector.

“It is a pity that the government has not considered the industry fit to be taxed at the lowest slab of 5 per cent, which would have given a tremendous boost to the industry. However, I do hope that our recommendation that the entire industry be taxed uniformly is accepted; failing which there will be huge issues of compliance, if not total chaos,” he added.

The Gem and Jewellery Export Promotion Council has demanded to fix GST rate at 1.25 per cent for the sector with continuing exemptions for diamonds. The council, in a representation to the finance ministry, said the government should not let go the pre-eminent global position the industry has achieved by imposing a higher GST rate.

At present, most of the jewellery items are taxed between 2.5-3 per cent and differs from state to state.

Kerala Finance Minister Thomas Isaac said in Srinagar that the state wants jewellery to be taxed at 5 per cent against 1.5 per cent that the industry has been demanding.

“Gold is a luxury product. It is not a necessity. Price of gold has quadrupled in the last one decade. Nobody had any problem. What is the big trouble with a 5 per cent tax on jewellery. We are very reasonable people (at the Council). We will discuss,” said Isaac.

The government has aligned most of the goods and services in the five slabs of taxation—5 per cent, 12 per cent, 18 per cent, 28 per cent and 28 per cent plus cess.

Revenue Secretary Hasmukh Adhia said the GST rate for all branded products including textiles will be decided on June 3. Though he said a final decision is yet to be taken on whether branded products should be treated differently from non-branded products, he suggested that manufacturers of branded products will benefit if a GST rate is imposed since they will be able to claim input credit.

Source: Livemint