Industry divided over 12% uniform GST rate on apparel and footwear

Large manufacturers and retailers are mostly happy as move addresses issue of inverted duty structure; some others see it as hurting small units, along with retailers and customers

The Central Board of Indirect Taxes and Customs notified a uniform goods and services tax (GST) rate of 12 per cent on fabrics, apparel, and footwear to correct the inverted duty structure, evoking mixed response from companies.

Large manufacturers and retailers are mostly happy with the move since the 12 per cent uniform tax slab addresses concerns about the inverted duty structure. This was an area of concern since some input components came under a higher tax slab.

The changed GST rates for apparel and footwear will come into effect on January 1, 2022.

“This is a welcome move by the government since the issue of an inverted duty structure has been addressed,” said Sanjay S Lalbhai, chairman and managing director, Arvind.

He explained that large companies faced the issue since large sums of capital were locked due to an inverted duty structure.

“However, it is important there are no loopholes and people are compliant with the norms,” he added.  

Footwear retailer Metro Brands’ Chairman Rafique Malik said, “The issue of an inverted duty structure is now neutralised.” He added that the 5 per cent GST slab for footwear below Rs 1,000 was causing confusion.

Value retailer V-Mart Retail though is not happy with the change in the GST slab for apparel and footwear. Its Chairman Lalit Agarwal believes it will cause the unorganised segment to mushroom. “This will increase the working capital requirement for the manufacturer,” Agarwal told Business Standard.

He explained that the costs of raw material are already high, and will hurt the manufacturer, retailer, and customer. More so, customers at the bottom of the pyramid who buy apparel below Rs 1,000.

Agarwal believes there is a possibility of a volume degrowth due to this move by the government. Lalbhai, however, believes this will not impact volumes, but there could be a price rise to some extent.

Retail industry body Retailers Association of India’s Chief Executive Officer Kumar Rajagopalan believes that apparel and footwear should have been kept in a lower tax bracket. “The economy is just about getting back on track after the pandemic. There is already an existing worry of inflationary trends due to higher input costs. This move by the government is bad for customers who buy products at low price points,” said Rajagopalan.