Central announces 12% uniform GST for textile and footwear

The Central Board of Indirect Taxes and Customs (CBIC) has notified an increase in goods and service tax rate of various kinds of textiles, apparel, and footwear to 12% from 5% earlier, which will be effective from January 1, 2022. However, GST rates for certain synthetic fibers and yarn have been lowered from 18% to 12%. This will bring in uniformity of rates for the entire textiles sector as well as remove distortions due to the inverted duty structure.

GST Council’s meeting that was held back in September decided to correct the inverted duty structure on footwear and textiles, which it said will come into effect from January 1, 2022 but had left the effective rate change undecided at that time. An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs.

In an industry, where almost 80% of the units are in the MSME (Ministry of Micro, Small, Medium Enterprise) segment, fixing the rate at 12% for fabrics and garments will only lead to higher prices for the common man, said Sanjay K. Jain, Chairman of the Textiles Committee of the Indian Chamber of Commerce.

According to Sanjay K Jain chairman, of ICC Textile Committee, and past CITI chairman, the total garments industry is worth Rs 10 lakh crore and out of this, Rs 8.5 lakh crore is from this segment.

“MSMEs mainly supply low-end garments, so the reduction in consumption in that segment would be huge as this segment is more price elastic and more working capital requirements will put more nails in this struggling segment,”

Sanjay K Jain also said that GST compliance had grown multifold in the unorganized segment as there was no financial gain on evading GST at 5%. He said that “However, it is feared that at 12% the unorganized segment will once again go back to old ways of evading tax.