TAX STRUCTURE AND INDIRECT TAXES IN THE TEXTILE SECTOR: AN ANALYSIS OF DIRECT AND INDIRECT TAXES

Abstract

This research paper provides a comprehensive analysis of the tax structure in the Indian textile sector, focusing on the transition from the pre-GST indirect tax regime to the post-GST framework. It examines the complex web of central and state-level taxes that existed prior to the Goods and Services Tax (GST) implementation, highlighting inefficiencies such as the inverted duty structure. The introduction of GST in 2017 was a transformative step, subsuming multiple taxes and streamlining the tax process. This paper delves into the corrective measures introduced in January 2022, which resolved the inverted duty structure, particularly in the Man-Made Fiber (MMF) segment. It also discusses the impact of GST on natural fibers like cotton, silk, and wool, which continue to benefit from favorable tax treatment. Additionally, the study explores how the new GST framework has bolstered the export competitiveness of Indian textiles by making export processes more cost-effective. The paper concludes by offering future suggestions and recommendations, including further simplification of the tax system, support for SMEs, promotion of sustainable practices, and continuous monitoring of the tax framework. These insights aim to contribute to a better understanding of the tax dynamics in the textile industry and propose ways to enhance its competitiveness in the global market.