In the 45th GST Council meeting, the Central Board of Indirect Taxes and Customs was recommended to increase the GST on garments and footwear from 5% to 12%. The increase in GST will likely be effective from 1st January 2022.
As per the Government, due to the economic impact of the second wave of COVID-19 pandemic, both the state governments and federal government are facing revenue challenges because of the shortage in the revenue. Therefore, the rise in taxes will help the centre in freeing up funds for welfare.
However, Industry and various states have clearly shown red flags to the textile GST hike.
In a pre-budget meeting held by union finance minister Nirmala Sitharaman, various states like Gujarat, West Bengal, Delhi, Rajasthan and Tamil Nadu clearly mentioned that they are not in the favour of a hike in GST.
Tamil Nadu finance minister P Thiaga Rajan said: “It is a one-point agenda (for Friday’s council meeting). It is an agenda that many states have raised. In the agenda item, it says that it was raised by Gujarat but I know that many states raised it … It (the move to raise the GST rate) should be stalled.”
Delhi Finance minister, Manish Sisodia also said “Delhi is not in favour of this”. The union government must roll back the increase in Goods and Services Tax rates for textiles, garments and footwear, said Madurai-based Tamil Nadu Textile Merchants Association
In the past two years, due to the COVID-19 pandemic, the Indian textile industry is yet to recover from the losses. the industry has witnessed enormous losses and the increase in the GST on Textile and footwear will create a negative impact on the industries. Many small unit Textile industries will be forced to shut down resulting in unemployment. Nearly 15 lakh jobs will be lost.
Furthermore, due to the rise in the price of raw materials, the final products will be more expensive and of low quality. People buying clothes under Rs 1000 will be badly affected.
The Confederation of All India Traders (CAIT) has urged Finance Minister Nirmala Sitharaman to defer the implementation of the GST rate hike on textiles and footwear. CAIT called the decision ‘illogical’ and “beyond the canon of GST tax structure”.
“It is noteworthy to mention that the GST collection across the country is increasing every month and as such any increase in tax rates without consulting the stakeholders will run contrary to the ‘ease of doing business’ call of Prime Minister Narendra Modi,” the letter read.
The Confederation of ALL India Traders claimed that the higher GST will burden small businesses significantly. As of now, the GST Council has decided to put a hold on the implementation of the GST until the next meeting.