"Understanding Current GST Rates and Their Impact on Textiles and Footwear"

Overview of Current GST Rates and Upcoming Changes

As of now, the Goods and Services Tax (GST) in India is structured into two tax slabs: a 5% rate for bills below ₹999 and a 12% rate for bills above that amount.

In January 2022, the GST Council announced significant changes aimed at rectifying the inverted duty structure within the Footwear and Textile sectors. Under the new regulations:

All footwear, regardless of price, will be subject to a GST of 12%.
With the exception of cotton, all textile products, including ready-made garments, will also have a GST rate of 12%.

Impact Analysis of GST Rate Increase

The proposed changes will have notable implications for consumers and the industry:

Price Increase for Consumers: By raising the GST rate to 12%, the average consumer will face a cost increase of 7%. This elevation will contribute to a one-time hike in product prices.
Working Capital Concerns: The industry anticipates that the increase will necessitate a higher working capital requirement, particularly impacting Micro, Small, and Medium Enterprises (MSMEs) in the textile sector.
Negative Effects on Businesses: Elevating the tax on garments priced below ₹1,000 from 5% to 12% could discourage formal transactions, potentially leading to an expansion of unaccounted business operations.

Industry Challenges Due to COVID-19

The textile industry, a major employer, has been severely affected by the COVID-19 pandemic. Key challenges include:

Decline in Sales: With social gatherings restricted and a shift to remote work, sales plummeted by over 50%. Many consumers now lack the financial capacity to absorb price increases.
Decreased Domestic Demand: The domestic market demand has dropped significantly, leading to numerous business closures and job losses. Raising GST to 12% may exacerbate this trend, resulting in further declines in demand, increased closures, and job cuts.

Recent Price Trends and Their Impact

Garment prices have surged by 20% over the past year due to rising costs of cotton and other raw materials. Additional increases in tax rates could severely affect smaller garment manufacturers, making it even more difficult for them to remain competitive.

Moreover, the potential increase in job losses is concerning, particularly as a significant proportion of garment sector employees are women. A study conducted by the Garment and Textiles Workers’ Union (GATWU) indicated that since the onset of the pandemic, approximately 60 garment factories in Bengaluru have shut down, resulting in nearly 40,000 job losses, mostly among women.

This data highlights the precarious situation in the textile sector and underscores the need for careful consideration of the implications of GST rate adjustments.