The price of clothing, as well as footwear, is likely to go up, as the Union government notified a uniform 12% GST rate for both from January 1, 2022, in what was an attempt to correct the inverted duty structure. This is a scenario in which the tax on individual inputs is more than the tax on the finished item. The increase was notified on November 18 by the Central Board of Indirect Taxes and Customs (CBIC).
The rate of GST on fabrics has been increased to 12% from 5%. Earlier, the GST on footwear below Rs 1,000 was 5%, but it has now been 12% for footwear of any value. Similarly, apparel too will be taxed at 12% uniformly, even those that were charged at 5% before. Woven fabrics of silk, cotton, wool, coarse animal hair, flax, woven fabrics of jute or of other textile bast fibres, as well as woven fabrics of other vegetable textile fibres have been included under items that will now attract 12% GST. The GST rate on synthetic fibres yarn has been lowered to 12%.
However, several components that used to be taxed at 5% are also being raised to 12%, a move that has not gone down well with several sections of the industry. In a note to Union Finance Minister Nirmala Sitharaman, the Retailers Association of India has said that the textile industry is in shock due to the decision, which it said is the second-largest revenue-generating commodity after agriculture. “Clothing which is also a basic need is taxed at 12% which is not justified,” it said.
In a statement, the RAI said the 7% hike has been proposed to address the issue of Inverted Duty Structure is an issue faced by a small segment in the textile value chain. “However, such a steep increase in the GST rate will adversely impact 85% of the industry while trying to ease the problem faced by not more than 15% of the industry,” he said.
Kumar Rajagopalan, CEO of the Retailers Association of India, said, “The increase in GST rates on textiles and apparel is not in anybody’s interest due to its impact. On the business side, it will add to the financial burden of an already-stressed sector, slow down its pace of recovery and affect working capital requirements especially in the case of MSME businesses which account for 90% of the industry. On the consumer side, it will lead to a rise in the prices of garments, thereby hurting consumption. On the government side, in the long run, it may lead to many unorganised businesses going out of the GST net.”
BusinessToday also quoted the Clothing Manufacturers Association of India, which said that the move will have a “major impact”, as the industry already faces pressure due to inflation.