The PHD Chamber of Commerce and Industry (PHDCCI) has called on the Indian government to urgently address a growing GST duty inversion in the polyester textile value chain. The industry body warned that the current tax structure—where raw materials attract 18% GST while finished goods are taxed at just 5%—has caused a severe working capital crunch, reducing global competitiveness and putting jobs at risk in India’s second-largest employment-generating sector.
In separate letters to Union Commerce Minister Piyush Goyal and Finance Minister Nirmala Sitharaman, PHDCCI noted that key raw materials such as Purified Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG) attract 18% GST, while finished products like Partially Oriented Yarn (POY), Fully Drawn Yarn (FDY), and Drawn Textured Yarn (DTY) are taxed at just 5%. This disparity has created a duty inversion gap of up to 13%, leading to blocked input tax credits (ITC) worth ₹2,000–3,000 crore across the polyester value chain.
Blocked credits and shrinking margins
The chamber argued that this imbalance is causing cascading economic effects. Manufacturers are struggling with blocked capital and rising costs, while also facing stiff competition from cheaper imports that do not suffer such tax distortions. The burden of seeking GST refunds has also added a layer of administrative complexity, impacting smaller manufacturers more severely.
In its appeal, PHDCCI urged the government to reduce GST on PTA and MEG to 5%, bringing them in line with the rates on finished goods. It also called for a unified GST structure across the polyester value chain to allow seamless credit flow and stimulate investment.
According to the chamber, over 80% of PTA and MEG consumption is directly linked to the textile sector, similar to how fertiliser inputs are treated in agriculture. A streamlined tax structure could restore competitiveness and improve cash flows for over 66 million MSMEs and enterprises connected to the sector.
A wider economic concern
Beyond tax correction, the PHDCCI warned that the ongoing distortion could derail India’s goal of achieving $350 billion in textile trade by 2030. The industry already plays a vital role in employment generation and export growth, and this structural GST anomaly is seen as a major roadblock to future expansion.
The chamber noted that rationalising GST in the textile sector is not merely an accounting adjustment—it is a strategic move to support Make in India, job creation, and long-term industrial resilience.