New Delhi, May 22: The GST Council, which has made items such as cereals and foodgrain tax-free, may impose a 5 per cent levy on branded foodgrain and cereals.

Officials said the next meeting of the council may consider a 5 per cent GST on branded rice, flour and cereals.

"We have to finalise a definition of branding. Once that is done, we can and possibly will impose a 5 per cent tax on branded foodgrain and cereals."

Branded grains and cereals are sold at a premium and their buyers can well afford a mild tax on them, the officials said.

They said the GST Council is yet to decide on taxes for the textile sector, which accounts for 5 per cent of India's GDP. Reports of an 18 per cent tax on branded apparel were "incorrect".

"While we can forecast what rates the finance ministers decide at their next meeting, no tax has been decided on any item of textiles as yet... as states have differing views on it," said officials.

India's textile industry, estimated to be worth about $108 billion, is expected to reach $223 billion by 2021 and is the second largest employer after agriculture, providing jobs to over 45 million directly and 60 million indirectly.

Officials said major textile producing states such as Tamil Nadu and Punjab preferred mild rates as higher taxes could turn out to be disastrous on a sector already suffering from falling exports and increased competition from countries such as Bangladesh, Vietnam and Cambodia.

The Indian Texpreneurs Federation as well as the Clothing Manufacturers Association of India (CMAI) have asked the government to ensure uniform rates of 5 per cent.

The CMAI estimates that even if there is 50 per cent compliance, a 5 per cent GST could raise annual revenues of Rs 11,000 crore against a total collection of Rs 3,500 crore from the sector.

At present, the value-added-tax on textile items varies from state to state. The duties are also different for various kinds of textiles.

Fabrics are now fully exempt from taxes but not yarn or garments. The way GST works, with input credit, the duty will apply to all on value addition and can be collected back from buyers.

However, textile units that till date did not pay taxes are unwilling to accept a steep 12 per cent or 18 per cent tax rate.

Analysts believe the consensus on taxation of the textile sector would be one of 5 per cent for those items of textiles on which there is no taxation as of date and 12 per cent GST on all other textile items.

However, a section of states that are net buyers of garments and textiles prefer an 18 per cent tax on high-cost branded wear, which they describe as luxury.

Industrial alcohol

Potable alcohol has been kept out of GST but industrial alcohol, including ethanol, will be taxed at 18 per cent once the new regime rolls out from scheduled July 1, revenue secretary Hasmukh Adhia said today.

"As far as industrial alcohol is concerned all of them would be under the GST ambit and the rate which we are going to put is 18 per cent," Adhia said.

Working capital woes

The introduction of GST will hurt the working capital cycle for companies and the availability of easy liquidity is necessary for up to four months, according to a report by a domestic ratings agency.

"The transition to goods and services tax will disrupt the working capital cycle of businesses in the initial phase and thus easy liquidity in the system is essential for two to four months," India Ratings said in a note today.

Easy system liquidity is necessary to minimise the magnitude of such a disruption and to absorb the sudden changes in requirement of short-term finance, it said.

Based on a study of 11,000 firms, it said input credit being locked up could be around Rs 1 lakh crore, of which about Rs 50,000 crore could be blocked for about two months.