This story is from June 28, 2017

In fear of capital locking up, Tirupur units wait and watch

Even as most units in Tirupur have registered with the GST (Goods and Services Tax) Network, confusion and uncertainty persists on issues including refunds for inputs used and the differential tax treatment for operations that essentially are part of the same textile manufacturing chain.
In fear of capital locking up, Tirupur units wait and watch
Even as most units in Tirupur have registered with the GST (Goods and Services Tax) Network, confusion and uncertainty persists on issues including refunds for inputs used and the differential tax treatment for operations that essentially are part of the same textile manufacturing chain.
“Preparations (for the rollout) have been below par. There is uncertainty as they have not worked out the nitty-gritty,“ says STS Chockalingam, proprietor, The Ainnurruvar, a Tirupur-based garment manufacturer.
“There is no clarity on input tax credit yet,“ he says. “We will have to face teething problems,“ says Raja M Shanmugham, president, Tirupur Exporters' Association. Job working units that form the bedrock of garment making in Tirupur are finding the transition to the new tax regime an arduous task. Many owners of job working units, which operate out of homes and small dwellings, employ family members and relatives. “Job working units are in a dilemma. They are in a wait and watch mode,“ says T Ilavarasan, who knits garments on a job work basis.
Many owners of job working units lack formal education and will have to employ a person for filing returns online, industry officials say. “There is a shortage of auditors in Tirupur. GST will only increase costs for job working units,“ says M P Muthurathinam, president, Tirupur Exporters and Manufacturers Association. “We would have to pay at least Rs 15,000 per month for employing a person to file (GST) returns,“ says Ilavarasan. Shortage of labour and lower costs propelled the rise of job working units that now account for more than 50% of production in and around Tirupur.
While job working units that produce yarn and fabric will have to pay 5% as tax, a host of other operations including garment printing, embroidery, washing, button fixing, ironing and packing that are carried out mostly by micro units have been placed under the 18% slab.
Though officials have assured that the levy would be made only on companies that are placing orders, owners of job working units fear that it would lock up their working capital. For instance, a company placing an order for Rs1 lakh would hold back Rs18,000 to the job working unit (or 18% for GST payment) till it gets a refund from the government.
Industry officials however reckon that the new tax would be good for them in the long-term. But the pace of disruptive changes has put them in a spot. “First, they announced demonetisation (of high value notes).
Next, they came up with GST. Now they are talking about changing the financial year (to January-December). They are not giving us breathing space,“ says Ilavarasan.
He gives people like himself two months to adapt and understand the changes.
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About the Author
M Allirajan

M Allirajan writes for the business section of The Times of India. He has been tracking mutual funds and markets for nearly four years. Having worked in a business newspaper and a business magazine tracking the emerging trends in business and developments in corporate India, he believes in giving straight, simple and reader friendly content. When not following markets and developments in the mutual funds space, he reads books and listens to music.

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