Clothes, shoes may become expensive from next January

GST Council On September 17, the company had announced its decision to fix duty inversions across the textile and footwear value chain with effect from January 1. At that time, it had not disclosed the details of tax rates. Higher duty on raw materials than on finished products leads to an inverted tax structure, making it difficult for manufacturers to claim input tax credit (ITC), and the burden is ultimately passed on to the consumer.

Under the ITC system, GST-registered businesses can claim levies already paid on the manufacture of a product, or supply of a service, or both, before making a final sale, to prevent cascading of taxes and reduce the tax burden. is entitled to.

The people cited above said on condition of anonymity that the 12% GST rate is being considered for a large portion of the products under two segments- textiles and footwear.

“As manufacturers are expected to pass on ITC benefits to consumers, the effect of increased tax on final price will be only marginal,” said one of the two people, adding that the final decision will be taken by the GST Council.

The finance ministry did not respond to an emailed query.

The second person said that the GST Council may continue with the dual rate structure, which would be 12% for wholesale of apparel and footwear for the general public and 18% for rich customers on high value products, especially on footwear, social for equity.

“A uniform 12% tax is likely to be levied on all garments, but there may be a possibility of two slabs for footwear, for items of mass consumption up to 12%. ₹1,000) and 18% for the rest,” said the person. Currently, the cost of the garments is up to Rs. ₹1,000 attracts 5% GST, while high value clothing attracts a 12% levy. Similarly, GST on footwear ₹1,000 or less is 5%, while others attract an 18% levy.

The textile sector is currently suffering from severe duty inversion in the value chain which ranges from 5% to 18%. While cotton and natural fiber, as well as yarn, are in the 5% GST slab, the tax on man-made fiber is 18% and that on man-made yarn is 12%. Fabric attracts only 5% GST, but fabric attracts double tax of 5% (for products costing up to Rs. ₹1,000) and 12% (for the rest).

Similarly, in the footwear sector, soles, components, chemicals, consumables, services and capital goods attract 18% GST, technical textiles (used in the manufacture of footwear) attract 12% tax and leather 5% levy. Is. Since 70% of the cost of footwear comes from these inputs, there is a 5% tax on the cost of the final product. ₹Makes 1,000 inversions.

MS Mani, senior director at consultancy firm Deloitte India, said duty reversal creates situations where refunds are sought for higher taxes paid on inputs, leading to working capital issues for affected businesses and for GST officials. The investigation work increases. “This move is in the right direction as manufacturers will be able to reduce their working capital and improve their cash flow, and consumers may also benefit if manufacturers benefit from better cash flow through lower prices on products. ,” said Mani.

Sunil Kumar, DGM of tax research and advisory firm Taxman, said the proposed changes “will be a sign of relief” for both the sectors. “In addition, it will also slightly increase the price of footwear and clothing and, thus, will have an impact on a large number of consumers,” he said.