GST hike on textiles evokes a strong response from the industry

23 December 2021, Mumbai:

There is strong opposition in Indian garment industry against the government's move to increase goods and service tax (GST) on textiles as the costs of raw materials are already rising. The Confederation of All India Traders believes, status quo on GST rates on finished goods be maintained and changes should be made only after a consultation with the textile ministry and industry stakeholders In fact, Praveen Khandelwal, Secretary General also plans to approach Finance Minister Nirmala Sitharaman and state finance ministers requesting them to reverse the proposed hike.

Contrasting views from the industry

Though the proposed hike is being opposed by many industry associations, a few consider it beneficial for theGST hike on textiles evokes a strong response from the industry. A Sakthivel, Chairman, AEPC opines, the GST hike rates will lessen the burden of tax compliance and help in releasing input tax credit residues accumulated on account of the inverted tax structure, saving crucial working capital for small businesses. Dealers in finished goods, however, disagree with him. Kumar Rajagopalan, CEO, Retailers Association of India, opines, such a steep hike will impact the remaining 85 per cent of the industry while benefitting only 15 per cent. It may also lead to a rise in garment prices.

BC Bhartia, National President, CAIT, believes the tax may block the capital of small traders and may prove to be a regressive step for the industry. The Retailers Association of India recommends a flat 5 per cent GST on the entire textile value as a solution to this problem. The will not only resolve the issue of inverted tax structure but also boost sector’s growth.

Clothing Manufacturer’s Association of India also calls the hike unjustifiable. The market may see a 15-20 per cent price increase in apparel costs in coming season even without the revised GST rate as prices of raw materials, especially yarn, packing material, raw cotton and freight are already rising.

The prices of raw cotton have increased by Rs 130 per kg so far this year compared to the preceding year, informs MP Muthurathinam, President, Tiruppur Exporters and Manufacturers Association. Further hike could force many units to shut down.

Mixed response from manufacturers

Tax experts say, the 7 per cent hike is substantial and would have a mixed effect on textile manufacturers depending on their business model. If they absorb the hike, it will erode their profit margins. On the other hand, if they pass it on to consumers, it will further strain their monthly budgets, adds Bipin Sapra, Indirect Tax Partner, EY India.