Experts have opposed the move saying it would impact demand in an already consumption-hit economy and also raise inflationary pressures
Representative picture of a small textile unit, which will have to pay higher costs. Credit: iStock Images
Apparel, clothing and footwear used by the poorer sections will get costlier from January 1 as the Centre has decided to raise the Goods and Services Tax to 12 per cent on items costing less than Rs 1,000.
The new GST rate on clothing up to Rs 1,000 per piece and footwear up to Rs 1,000 a pair has been hiked from 5 per cent. Synthetic and artificial yarn too will attract a higher GST of 12 per cent but cotton, silk and wool yarn have been spared as of now.
The move was taken to correct the inverted duty structure on textile and leather goods. An inverted duty structure arises when taxes on final products are lower than taxes on inputs. This bars the manufacturers from availing of input tax credit on higher taxes paid on raw materials.
The changes in tax rates were recommended by the GST Council, the apex decision making body on the indirect taxes, which the government said was in the favour of traders.
Traders, however, have made mass representations against the move, saying it will hurt a large section of people in the country.
The country’s 700-strong small traders body Confederation of All India Traders said on Sunday that the GST Council has stopped consulting traders and is taking decisions arbitrarily, having no touch with the ground realities of trade.
It said that said 85 per cent of the country’s population buys clothes and shoes worth less than Rs 1,000, which currently attracts the lowest GST rate of 5 per cent. “The decision is extremely irrational and will impact the livelihood of small manufacturers, artisans and other sections,” CAIT said.
The textiles sector, the second-largest revenue-generating sector after agriculture and badly hit by Covid-19, provides employment to a large section of the economy, especially in small and medium industries.
Experts have opposed the move saying it would impact demand in an already consumption-hit economy and also raise inflationary pressures.
Former West Bengal Finance Minister Amit Mitra warned that the move will lead to the closure of at least 1 lakh small and medium textile units, which operate on thin profit margins and do not have working capital to move to 12 per cent GST from 5 per cent.
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