In relief to industry, GST council defers increasing tax rate on textiles to 12%

Many states had opposed the move to hike GST on textile products to 5% to 12% uniformly, which was supposed to come into effect on January 1, 2022.
Nirmala Sitharaman
Nirmala Sitharaman
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The GST Council on Friday, December 31, decided to put on hold the decision to hike tax rate on textiles to 12% after many states opposed the move. The 46th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state counterparts, decided to deliberate on the issue further in its next meeting. Currently, tax rate on manmade fibre (MMF) is 18%, MMF yarn 12%, while fabrics are taxed at 5%.

The Council in its previous meeting on September 17 had decided to correct the inverted duty structure in footwear and textile sectors. It had decided that with effect from January 1, 2022 that a 12% uniform GST rate would apply on textile products, except cotton, including readymade garments.

Union Finance Minister Nirmala Sitharaman, addressing the media on Friday after the meeting, said, “On the 29th, the letter also comes from the Finance Minister of Gujarat [on deferring] and therefore the emergency meeting. We retain the status quo and not go to 12% from 5%, meaning [we] don’t do the correction now in the case of textile.”

Since there is a matter of inversion, the Finance Minister said that the matter would go back to the rate rationalisation committee along with the other items the committee is looking at, headed by Karnataka Chief Minister Basavaraj Bommai.

“The decision of the committee was that the rate rationalisation committee will also include textile in their review and submit a report by February, which I agreed to have circulated to all minister and post that to hold either in end-February or early March a council meeting in which the committee’s recommendations and report itself be discussed. It’ll [the meeting] be on every item, but this now also includes textile,” she added. 

States like Gujarat, West Bengal, Delhi, Telangana, Rajasthan and Tamil Nadu had said they are not in favour of a hike in the Goods and Services Tax (GST) rate on textiles to 12%, from 5%, with effect from January 1, 2022.

Andhra Pradesh Finance Minister Buggana Rajendranath Reddy told reporters that several states said in the meeting that there was no clarity on GST to be imposed on apparel, clothing and textile products. “Several states including Andhra Pradesh requested the Council to take back the earlier decision to increase the GST on textiles from current 5% to 12% from January 1 2022," he said.

Even there was no clarity on the rate of GST that would be imposed on nylon and cotton fabric as well as man-made and natural textiles. There were also no estimates available with the Council on possible increase in refund if to be given, he said.

Stating that any hike in GST on textiles will impact Andhra Pradesh the most, Reddy said it is because there are about 3 lakh handloom weavers and most people wear cotton clothes unlike nylon in other states. "...we requested the Council to take a call on increasing the GST on textiles after conducting a thorough study and assessing the data," he added. Telangana Industries Minister KT Rama Rao too had earlier made a case for withdrawal of its proposed plan to increase GST rates. 

The Industry too has opposed the rise in tax from 5%, citing higher compliance cost especially for the unorganised sector and MSMEs besides making poor man's clothing expensive.

A Sakthivel, the Chairman of Apparel Export Promotion Council (AEPC) told the Economic Times that the deferment is a good decision. "Deferring the rationalisation of rates and reviewing the matter in its next meeting is a good decision as this will provide further time to understand and evaluate the views of various stakeholders involved in the process, including the consumers, This would ensure that a well-thought decision may be taken in country's interest," he said.

Friday's GST Council meeting is significant as it is taking place ahead of the Union Budget for 2022-23, which is scheduled to be presented in Parliament on February 1, 2022

With inputs from agencies

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