GST on garments, footwear set to go up from New Year

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All eyes are on chief minister Basavaraj Bommai as he heads a group of ministers on rate rationalisation in the hope that it will lower the Centre’s proposed 12% GST on readymade garments, textile materials and footwear. It’s a steep hike from the current 5%.

The GST council in September decided to hike the GST on all types of apparel, textile goods and footwear costing up to Rs 1,000 from 5% to 12% effective January 1, 2022 and the Central Board of Indirect Taxes and Customs (CBIC) on November 18 issued a notification about it.

The objective is to eliminate discrepancy due to inverted duty structure, where the tax rate of raw materials is higher than the rate on finished goods. While currently manmade yarn and fibre have been taxed at 12%, readymade garments priced below Rs 1,000 are taxed at 5% creating a problem for a trader to avail input tax credit. The government wants to eliminate it by bringing in uniform tax rates.

This results in higher price of merchandise and consumers from lower income groups bear the brunt. While the basic price of raw materials has already increased by about 25%, the hike in GST will further push up the price of readymade goods by 7%. For instance, the price of a branded or unbranded shirt being sold for Rs 700 has already jumped to Rs 875 plus 5% GST and the consumer will have to pay Rs 61.25 more from next month.

“About 80% of consumers buy readymade garments and footwear pricing below Rs 1000 and they will be badly hit by the tax hike. The government can solve the problem by bringing all raw materials and finished goods under the uniform 5% slab. Hiking the rate to 12% is not the solution,” said BT Manohar, member, Karnataka state GST advisory committee.

Bommai in September had written to Union finance minister Nirmala Sithraman requesting her to bring down GST rates on the entire gamut of textile materials and garments to 5%. Now, he heads the GoM on rate rationalisation and stakeholders expect him to follow up.

“We hope Bommai will help the ailing textile industry by having the GoM recommend lower tax rates. We gave him a representation, explaining how taxing 5% will help boost the economy recovering from Covid-induced slowdown and increase the government’s revenue through improved tax compliance,” said trade activist Sajjan Raj Mehta, who recently led a delegation to meet the chief minister.

The GoM mandated to submit its report to GST council slated to meet in December third week has met twice and will meet again shortly and finalise its recommendations.

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