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Imagine you own a factory that makes leather shoes. You buy raw leather, thread, and rubber soles. Now, what if the tax you paid on those raw materials was higher than the tax you collect when you sell the final, finished pair of shoes?
Sounds backward, right? Well, that's a real problem some Indian businesses are facing, and they’re asking the government to fix it.
This upside-down situation is called an "inverted duty structure," and it's become a major headache for manufacturers. Ahead of the next big GST Council meeting, industry leaders are making a renewed push to get this sorted out once and for all.
So, what's the big deal?
Let's break it down simply. Under the Goods and Services Tax (GST), a business pays tax when it buys supplies (inputs) and collects tax when it sells its products (outputs). Normally, the tax on raw materials is lower than the tax on the final product.
But in an "inverted" structure, it's the opposite. A company might pay 18% GST on its raw materials but only collect 12% GST on the finished goods it sells.
This creates a serious cash flow problem. The business ends up paying more tax to the government than it collects from its customers. To get that extra money back, they have to file for a tax refund. While a refund system exists, business owners say it’s often slow and complicated. Their money—valuable working capital that could be used to pay salaries or buy more materials—gets trapped in the system for months.
It's a roadblock for "Make in India"
This tax issue also works against the goal of boosting local manufacturing. If it’s more complicated and financially stressful to make a product in India due to this inverted tax, it can sometimes become cheaper or easier for a company to simply import the finished product instead. That's the last thing anyone wants.
Sectors like textiles, footwear, and some electronics have been particularly affected by this. They argue that a simpler, more logical tax structure would make it easier to do business and encourage more production within the country.
As the GST Council prepares for its next meeting, the hope is that they will listen to these concerns. For many businesses, fixing this isn't about finding a loophole; it's about creating a tax system that makes common sense and supports, rather than hinders, Indian manufacturing.
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