The GST Council has decided to postpone a rate increase on textiles from 5% to 12%

The Goods and Services Tax (GST) Council resolved on Friday, at its 46th meeting, to postpone the proposed increase in the textiles sector's tax rate from 5% to 12%, which was set to take effect on January 1. 

The GST rate for textiles will remain unchanged for the time being, with a ministerial panel reviewing the rate structure by February, Finance Minister Nirmala Sitharaman said after the meeting.

"Beginning in December, representations began to arrive, and on December 29, a letter from the Gujarat FM arrived, prompting the emergency meeting." 

"The emergency Council meeting today decided to keep the status quo and not go to 12%, from 5%, which means we won't perform the correction now in the case of textiles," she explained.

When the taxes on output or finished product are lower than the taxes on inputs, an inverted duty structure results, resulting in an inverse buildup of the input tax credit, which must be returned in most situations.

The government has been forced to rethink the duty structure due to the inverted duty structure, which has resulted in a stream of revenue loss. To remedy the inverted duty structure, the GST Council suggested certain rate changes for footwear and textiles during its 45th meeting in September.

The meeting on Friday was conducted to examine one item on the agenda: rate revisions in the textiles industry.

The Finance Ministry announced a standard 12% rate for manmade fibre, yarn, textiles, and apparels in November, as well as a 12% uniform rate for footwear.

The rate increase was announced to take effect on January 1st. At the moment, the tax rates for manmade fibre, yarn, and fabrics are 18%, 12%, and 5%, respectively.

The proposed rate hike for textiles from 5% to 12% has raised concerns among many states and industry organisations. Amit Mitra, the West Bengal Chief Minister's Principal Chief Advisor, urged Union Finance Minister Nirmala Sitharaman to reverse the proposed raise last week.

He predicted that the new tariff structure will result in the closure of 1 lakh textile firms and the loss of 15 lakh jobs across the country. KT Rama Rao, the Telangana Industries Minister, has also requested the Centre to drop the proposed GST rate hike.

Gujarat wrote to the Union Finance Minister, expressing concern that the decision to raise the GST rate on textiles from 5% to 12% will affect a large number of taxpayers in the textile industry. The textile industry has warned that such a decision might have a detrimental impact, resulting in a decline in demand and recession, according to the state. Sitharaman stated that the industry felt "there could be a temptation not to come into the formalised system and the immediate pressure to be in the realm of the informal segment of the business" while making its representation, adding that it was also felt that burdening the lower end of the buyers was not the intention. She went on to say that every state minister is on board with fixing the inverted duty system. She went on to say that the ministerial panel, which is already looking into rate rationalisation, will now look into the textiles sector as well, and that the Council will likely discuss the group's proposals in late February or early March.