Inverted Duty Structure in Man-Made Fibre (MMF) Sector

18.09.2025

Inverted Duty Structure in Man-Made Fibre (MMF) Sector

Context

India’s textile industry faces challenges from an inverted duty structure where the GST on raw materials exceeds that on finished textile products. This tax mismatch hampers competitiveness and affects the supply chain in the Man-Made Fibre (MMF) sector, which is vital for the textile industry.

About the Inverted Duty Structure

• Raw materials like polyester fiber, nylon, acrylic, and recycled PET plastic chips used to produce textiles attract an 18% GST.
• Finished textile products are taxed at a lower GST rate (e.g., 5%), creating a disparity.
• This mismatch increases production costs for manufacturers and discourages domestic textile manufacturing.

Importance of MMF Sector

• MMF includes synthetic fibers like nylon, polyester, acrylic, and lycra, crucial to textile production.
• Recycling PET plastic contributes significantly to sustainability by converting plastic waste into textile fibers.
• The textile industry is a major employer and export earner for India, making an efficient tax structure critical.

Economic Implications

• The inverted duty structure leads to an “input tax credit” gap, disrupting smooth business operations.
• Higher taxes on inputs encourage the use of lower-quality imported raw materials, undermining domestic producers.
• This affects pricing, export competitiveness, and growth prospects of the sector.

Way Forward

• Harmonization of GST rates on raw materials and finished goods to encourage domestic manufacturing.
• Promote recycling initiatives to advance sustainability in textiles.
• Policy reforms to correct the tax inversion, supporting both industry growth and environmental goals.

Conclusion

Addressing the inverted duty structure in the MMF sector is essential for the growth and global competitiveness of India’s textile industry. It will foster sustainable production while reducing costs and encouraging domestic manufacturing.