Inverted duty structure

Subject – Economy

Context – To correct duty structure, FinMin notifies 12% GST on textiles, footwear from January 1

Concept –

An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs, creating an inverse accumulation of input tax credit which in most cases has to be refunded.
Inverted duty structure has implied a stream of revenue outflow for the government prompting the government to relook the duty structure.

What are the problems with the current inverted duty structure under GST?

The inverted duty structure is causing several administrative problems in our GST system.

Taxpayers will have accumulated credits in the form of refund claims with the tax Department.
The inverted duty structure is a revenue loss for the government as it has to refund the tax already paid (in inputs).
Under GST, the inverted duty structure is identified for goods and not for services. Or in other words, there is recognition for ‘input good’ and not for ‘input services.’