A hike in GST rates was announced in November 2021 by the Central Board of Indirect Taxes and Customs (CBIC). This has resulted in the frustration of both the business owners and the customers and has hence attracted the wrath of several state governments.
GST Latest Updates on Clothes, Textiles and Footwear:
A proposed change in GST rates in the new year has severely disappointed the business sector and consumers at large. The 46th GST Council meeting had taken decisions to revise the GST rates on the apparel, textile, and footwear sectors. This had been notified as early as November 2021 by the Central Board of Indirect Taxes and Customs (CBIC). This new year, sadly, the GST will see new hikes in the mentioned domains.
It will be a whopping shift from 5% to 12% and, for obvious reasons, the move is not a welcome one in various states including Tamil Nādu, Telangana, Rajasthan, Gujarat, West Bengal, and Delhi. According to the new rates that would be applied from January 1 2022, buying a new shoe above ₹1000, would surely pinch one’s feet hard as, henceforth, it would be charged a GST of 12%. Likewise, all readymade textile clothes, other than those made of cotton would also attract a GST of 12%. It has to be noted that the mentioned items were charged a mere 5% previously.
Challenges Posed by the New GST Rates:
It is opined that the move is not so people-friendly and is sure to burn big holes in the pockets of a common man. If a shirt is purchased for ₹1000, a corresponding GST of ₹120 is to be paid. The states are definitely not for this new set of rates. There is a fear that if these tax rates persist for the days to come, this could result in a huge loss of employment all around the nation, as several textile units would be shut down.
This would make the unorganised sector in the country suffer severely. Also, the compliance costs seem to be way too high for the MSME sectors and hence such industries would face a slow death. The textile industry in India contributes to almost $40 billion of exports. Laying hands on this sector would sabotage the entire economy of the nation. The Confederation of All India Traders (CAIT) has considered this move of the government to be draconian and has stated that this trend will not only be a burden on the consumers but would push the small traders to evade tax as well, which in turn would have higher repercussions. Also, the pressure from the current tax system may push small business owners into an informal way of conducting the business which could become detrimental in the long run.
The Clothing Manufacturers Association of India (CMAI) has remarked that this change that is imposed on the textile sector was highly disappointing. The President of CMAI had stated that the tax rates add severe stress to the textile sector as the cost of procuring raw materials, like that of the yarn, and freight charges are already on the higher end. This would increase the rates of the products as it is even without the increase in GST rates. Now with the increase in GST as well, the situation might go downhill in the textile sector.
But this is not the end of it and there is more to the list. Looks like a common man can not only dress up himself with new clothes and shoes, but he won’t even be able to afford to pick a cab for a ride either. A 5 percent of GST will now be applicable to all the Uber and Ola rides as well.
However, it looks like there might be a wee bit of light at the end of the tunnel. The GST council has decided to hold the status quo on the textile industry, by having the GST charged to 5 percent only due to the pressure exerted by various State Governments. But the rates on the footwear will be 12 percent as decided earlier.
Recommendations of the Fitment Committee:
It appears that the GST fitment committee, which has seasoned tax professionals, has suggested to the Group of Ministers (GoM) to make a few alterations in the tax slabs and also to draw out a few goods from the exemption list.
Presently, the GST registration online system has a four-tiered slab structure ranging at 5, 12, 18, and 28% respectively. It is a known fact that, until now, indispensable requirements are either awarded a GST exemption or at least taxed at 5% which is the lowest slab, whilst, luxury and exorbitant items are charged at 28% being the highest slab.
There have also been suggestions to fuse the 12 and 18% slabs into a unified 17% slab and also remove a few items from the exemption class to balance the rate changes in the GST apply system. There is also news that suggests that the committee has suggested that the 5 and 7% slabs be increased to 18 and 20% respectively. The list would be incomplete if precious metals like Gold and Silver are left untouched. It appears that the committee has suggested the GST rates on gold and silver be hiked from 3 percent to 5% as well.
Although the recommendations of the committee would send jitters down the spine of a common man, it might be a temporary relief that these suggestions are yet to receive the assent of the GST council. The proposals by the committee will generally be scrutinised by the council before taking formal decisions.
The justification given for the increase in GST rates is that it is done so to tackle the competition from neighboring countries like Bangladesh that are now playing a tough game with India in sectors like textiles. It is said that the proposed changes would rectify the inverted tax structure. But in the process of rectifying a tax glitch, whether the poorer sector of the nation is taken for a bumpy ride is a million-dollar question for which we have to await the answer, in the days to come.