GST watch: Hands that craft have gone ‘missing’

The hand-made products segment seems to have been adversely affected by the Goods and Services Tax (GST) framework. Sectoral representatives and experts say there are multiple issues in the new tax regime that may inhibit growth in the industry, which already faces many challenges, including from cheaper imports and machine-made products. For instance, the number of handloom weavers in the country has been in decline from 63 lakh in 1996 to 43 lakh in 2010, based on Census data.

A note prepared on behalf of the hand-made goods segment and shared with the Prime Minister’s Office draws attention to the fact that the word ‘hand’ (as in, for instance, hand-made or handicraft) is entirely missing from the GST list of items – except for a perfunctory reference to ‘handloom machinery’.

This implies that the concepts of ‘handwork’, ‘handicraft’, and ‘hand skills’ have not been acknowledged at all in the GST framework.

There appear to be issues with GST on at least five fronts. One, there are multiple tax slabs for similar items, which is very confusing.

For example, codes 9601 and 0507 refer to tortoise-shell - unworked or raw material; the former attracts 18 per cent tax, while the latter is taxed only at 5 per cent. How one can determine what category a product falls under is unclear.

Second, many low-priced items such as needles, kites, carnival toys and broomsticks are now taxed.

Mahesh Krishnamurthy, founder of Craftisan, an e-commerce platform for hand-crafted products, says that under the earlier tax regime, in Delhi, VAT was 0 to 5 per cent for handlooms and handicrafts, but now the tax range is from 3 per cent to 18 per cent.

“The retail price for consumers will have to increase, which may potentially cause reduced absorption,” he says. Also, certain products and raw materials that are hand-made by the most disadvantaged groups are under punitive GST rates.

Third, sellers must register in multiple States as most of the buyers for products from the craft community operate on a pan-India basis. For example, they may be selling to online portals or those who conduct fairs in various States.

Every supplier, howsoever small, is required to register under GST when making inter-State supply, which adds to the compliance burden for artisans. Fourth, given that the industry is highly fragmented, it is not easy for many small producers to register.

According to data from the Export Promotion Council of Handcrafts, the industry has over seven million regional artisans.

Many of them are unregistered and sell to larger buyers. Now, they may be forced to register or go out of business.

There is no awareness on registration procedures and compliance.

Similarly, when exporting products, under the GST framework the exporters must pay GST upfront, and then get a refund.

The process of getting a refund is tedious and often the effort may not be worth the refund amount, notes Pune-based tax consultant Pritham Mahure.

This will also impact working capital requirements, and given the complexities, small players should have been exempt from the provision, he says.

With over 67,000 export houses, a favorable export policy will aid the market, which grew 11 per cent last year.

A survey by the Dastkari Haat Samiti showed that nearly 90 per cent of craftpersons were not aware of reverse input refund on tax paid for raw material, and 75 per cent did not know the tax rate that is applicable to their specific craft.

Government officials indicated that they are currently working with those registered under VAT and will reach out to unregistered segments in the next few months.