Impact of GST Over Indian Handicraft Industries

Adverse effects of the GST (Goods and Services) regime can be clearly seen over handicraft industries. Census data says there is a huge downfall in the handicraft industry from 1996 to 2010. The growth has slashed by approx 53% which is a drastic price change we can see on hand-made products. Apart from this, the new tax framework is also intercepting the growth of the industry.

The word ‘Handmade or Handicraft’ is completely missed out in the current tax regime. We can find the word ‘hand-loom machines’ somewhere in the GST framework, which looks like it is placed to show courtesy to the Handicraft Industry.

56th GST Council Meeting Update for Handicrafts

The GST Council has decided to reduce the GST rate on handicrafts from 12% to 5%. The revised rate will be applicable from 22nd September.

Handicrafts List	Current GST Rate	New GST Rate From 22nd September
“Idols of wood, stone [including marble] and metals [other than those made of precious metals]”	12%	5%
“Statues, statuettes, pedestals; high or low reliefs, crosses, figures of animals, bowls, vases, cups, cachou boxes, writing sets, ashtrays, paper weights, artificial fruit and foliage, etc.; other ornamental goods essentially of stone”	12%	5%
“Statues and other ornamental articles”	12%	5%
“Worked ivory, bone, tortoise shell, horn, antlers, mother of pearl, and other animal carving material and articles of these materials, articles of coral (including articles obtained by moulding)”	12%	5%
“Paintings, drawings and pastels, executed entirely by hand, other than drawings of heading 4906 and other than hand-painted or hand-decorated manufactured articles; collages, mosaics and similar decorative plaques”	12%	5%
“Original engravings, prints and lithographs”	12%	5%
“Original sculptures and statuary, in any material”	12%	5%
“Collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, paleontological, ethnographic or numismatic interest [other than numismatic coins]”	12%	5%
“Antiques of an age exceeding one hundred years”	12%	5%
“Handbags including pouches and purses; jewellery box”	12%	5%
“Handbags, including pouches and purses; jewellery box”	12%	5%
“Wooden frames for painting, photographs, mirrors etc”	12%	5%
“Statuettes & other ornaments of wood, wood marquetry & inlaid, jewellery box, wood lathe and lacquer work [including lathe and lacquer work, ambadi sisal craft]”	12%	5%
“Art ware of cork [including articles of sholapith]”	12%	5%
“Handmade/hand embroidered shawls of sale value exceeding Rs. 2500 per piece”	12%	5%
“Stone art ware, stone inlay work”	12%	5%
“Tableware and kitchenware of clay and terracotta, other clay articles”	12%	5%
“Statuettes & other ornamental ceramic articles (incl blue potteries)”	12%	5%
“Ornamental framed mirrors”	12%	5%
“Glass statues [other than those of crystal]”	12%	5%
“Glass art ware [ incl. pots, jars, votive, cask, cake cover, tulip bottle, vase ]”	12%	5%
“Art ware of iron”	12%	5%
“Art ware of brass, copper/ copper alloys, electro plated with nickel/silver”	12%	5%
“Aluminium art ware”	12%	5%
“Bells, gongs and like, non-electric, of base metal; statuettes, and other ornaments, of base metal; photograph, picture or similar frames, of base metal; mirrors of base metal; (including Bidriware, Panchloga artware, idol, Swamimalai bronze icons, dhokra jaali)”	12%	5%
“Handcrafted lamps (including panchloga lamp)”	12%	5%
“Furniture of bamboo, rattan and cane”	12%	5%
“Dolls or other toys made of wood or metal or textile material [incl wooden toys of sawantwadi, Channapatna toys, Thanjavur doll)”	12%	5%
Ganjifa card	12%	5%
Worked vegetable or mineral carving, articles thereof, articles of wax, of stearin, of natural gums or natural resins or of modelling pastes etc, (including articles of lac, shellac)	12%	5%
Hand paintings, drawings and pastels (incl Mysore painting, Rajasthan painting, Tanjore painting, Palm leaf painting, basoli etc)	12%	5%
Original sculptures and statuary, in metal, stone or any material	12%	5%
Handmade Paper and Paper board	12%	5%

Artisans Seek GST Rate Cut on Handicrafts

After the Union Budget 2020 presentation in the Parliament, the constantly increasing Budget 2020 proposals encounter appeal by handicrafts as well for the higher tax relief so that the sector can combat the adverse financial effects of the Goods and Services Tax (GST) rates and economic slowdown.

Under the VAT regime, the nominal VAT of 4% was applicable to most of the products and VAT of 14% was imposed on furniture. “But overall, it was lower than the GST rates,” said Mr Ramu. As a result, there was an extensive decline in the turnover of the handicrafts factory. Associations members are now pressing pedals for a rate cut in GST on such items in the budget so that the industry can revive.

How GST Affects the Handicraft Industry

• The ambiguous tax rates on different products or on the same products are making the industry in perplexing conditions. The local money lenders and middlemen are making money, but when it comes to artists, it is discouraging for them as there is a tax on raw material and on finished products too. For example, raw tortoiseshell attracts 5% tax, and unworked material attracts 18% tax
• There is 5% tax on raw yarn and 5% on products. When a supplier provides the raw yarn it charges 5% tax and including warping and twisting the tax goes to 23%. As the end product, there is 5% tax which is paid by the customer and shown in invoices. The whole tax on sarees goes by 28% which obviously affects the overall cost
• Mostly the middle class or poorer families are involved in Weaver and handicrafts finishing, for them, it is an onus to perform online and remember HSN, GSTIN Number and carry invoices stage to stage
• The lack of awareness is making the industry to run out of performance. A survey conducted by Dastkari Haat Samiti explained that 90% are unaware of the refund mechanism and 75% are unknown by applicable tax rates.
• The Banaras is facing a pittance because after independence, there was no tax on Banaras yarn and now, due to the drastic implementation of taxes making the industry imbalance between supply and demand. So many roarings with anger are coming from Tamil Nadu also because of Kanchipuram and Arini sectors are facing the slowdown
• Weavers are very frustrated by the new tax regime and are showing a lack of interest in proceeding further in this career. Their story is now shared on social media, explaining their pains and expecting the amendments in the new tax regimes.
• Most of the products, such as kites, needles, broomsticks and kids’ toys, which were previously exempt from tax, now they are now taxed under the GST regime
• There is mandatory registration under GST, whether it’s a small industry or big one. For small sellers, if they are selling interstate, they still have to register under GST. As there is no awareness and assistance in the registration processes. It is added burden to their shoulders to comply with the system
• The handicrafts system is multi-layered, where the small businesses sent their product to larger buyers and larger buyer after collecting it from multiple sources and spread it out. So it is a competitive phase for those small businesses because to stay in the system they have to register or the second option is to get out of it
• The refund scheme is still not working in this industry. As at the first-hand businesses have to pay the taxes, later they get the refunded amounts in their account. If the refund system was so frequent and less-troublesome, it would be great step to form the system. But according to Pune based tax consultant Pritham Mahure, the process is very complex and sometimes the efforts are futile to get the refunds

GST Council Lowers GST Rate on 29 Handicrafts Items

25th GST Council meeting recently took the decision to fix tax rates on over 29 handicraft items which may further give clarity on production and distribution of these particular handicrafts items under the GST scheme. The GST council had revised the tax structure on these handicrafts item and has taken down GST on them making them free of GST.

The move has been taken to preserve the community of handicrafts makers and their livelihood which was earlier in the threat due to the applicability of GST and its manifold tax compliances. In the records, there is an average export of 4000 crores of handicrafts yearly which also includes handmade carpets. The council has given the handicrafts dealers to apply the new tax rates from January 25th anyhow to further provide sooner compliance to the industry.

A Minimum GST Requires On Handicraft Products:

There is no doubt that the Handicraft sector is badly affected by GST implementation. Previously the industry was exempted in around 15 states and was levied 5% VAT in 8 states. But now, there is a completely changed story. 12% and 18% GST on Handicraft sector is the topic of discussion at present.

“Sales are down by 20% and small/medium units are winding up their business,” according to P Subramanian who is president of Southern Handicrafts Industry Association. He further said that it is quite difficult for small businesses now to face such burden of taxes.

He mentioned, “Most of the handicraft products are traditional arts reflecting our cultural heritage carried forward from several centuries.” However, the GST imposition on coir items have been put to 5% and reduced 12% from 18% on furniture manufactured from bamboo/cane.

Subramanian further wants to exempt all handicraft products from GST imposition. If it is not possible for GST council to exempt the sector, then at least it can put a minimum GST of 5% under separate head regardless of  HSN (harmonised system of nomenclature) codes, Subramanian suggested in a statement.

GST Refunds Blockage Impacted Handicraft Exports Industry Heavily

With the continuous blockage in GST refunds for handicraft export industry, the sales have been reduced to 50% in five months after GST implementation. The Jodhpur Handicrafts Exporters’ Association revealed data that Rs. 450 Crores have stuck with GSTN from July to December months. Consequently, the working capital of exporters is not performing anything and has blocked with new tax regime.

Read Also: How to File GST Refund Claims Manually? Step by Step Guide

The director of the association discussed the issue with the finance secretary, Hasmukh Adhia, and the GST experts committee. If nothing has been done to improve refund mechanism immediately and exporters do not receive the promotion scheme, then export industry can go in danger. Further, the association demanded 100% relief from income tax liability.

3 Reasons For Failure In Refund System

• The label 6a on GST portal and shipping bill entry on custom EDI are not matching with each-other
• The new system has become a hurdle for traders
• Form GSTRFD-1 A is available on the GST portal but assessees are not able to submit this form

GST Refunds Causing Problems to Handicrafts Businesses

The Exports Promotion Council for Handicrafts has given information that, due to many problems in GST refunds and a weak International market, the Handicrafts export business will be 3.5% less than the previous financial year. Council Chairman O.P. Prahladka had pleaded to the government to solve the GST refund problem as early as possible so the exporters can be free from the cash problem. He also said that Handicrafts Exports 3500 crores are stuck in because of GST and it mostly belongs to small exporters.

Prahladka has said that the government has still not decided on the GST refund date. And the higher interest rates have caused the exporters to do business in very limited capital because they can not borrow more loans from the banks. He also asked the government to increase the interest subsidy from 3 percent to 5 percent.

Handicraft Business Records a 6% Drop in Exports

For the first time in the past 10 years, the handicraft exports have dropped. A six percent drop was recorded in the export of handicraft goods in 2017-18. This is being associated with the last year’s launch of goods and services tax (GST) in the country which has reportedly affected the export industry by a great deal.

The handicraft export which was worth 24,992 crores last year dropped to 22,916 in the financial year 2017-18. The industry had seen a continuous rise in the last ten years, including a 13 per cent growth from 2015-16 to 2016-17. However, the exports have gone down by over 6 per cent this year. Many dealers are considering this an impact of mismanagement in GST handling and implementation. Issues like delay in refunds for exporters, disrupt in capital flow, and delay in shipping resulted in a decrease in repeat orders, all thanks to GST.

Commonly Asked FAQ’s Regarding Handicraft Industry