The Government of India has decided to raise the goods and services tax (GST) imposed on finished products such as apparel, textiles and footwear from 5 percent to 12 percent, w.e.f January 2022. Hence, this new year is going to be heavy on the pocket of a customer.

The Central Board of Indirect Taxes and Customs (CBIC) informed on November 18.

The GST rate on fabrics and footwear will be up by 7% instead of following the current rate of 5 percent from January 2022. 

GST on the apparel-- of any value, will be put under the 12 percent slab rate, whereas earlier, units priced up to Rs 1,000 were the subject matter under the 5 percent GST slab rate.

GST rates on textiles including woven fabrics, synthetic yarn, pile fabrics, blankets, tents, accessories such as tablecloths or serviettes, rugs, and tapestries will become more than double, from 5 percent to 12 percent. 

The Clothing Manufacturers Association of India (CMAI) on November 19 showed its disappointment on the hike in GST rates on apparel, as per media reports.

“CMAI, along with associations and trade bodies from all over India have been vigorously representing to the government and GST Council not to implement this change, and it is indeed extremely disappointing that the Council has chosen not to heed their plea," Rajesh Masand, president, CMAI said ina statement.

The statement also added that the impact of the tax rate hike would fall on the end product as the industry is already facing inflationary headwinds, with prices of raw materials, especially yarn, packing material, and freight all soaring. 

"The market was expected to see a 15-20 percent price increase in apparel cost in the coming season even without the GST rate increase. Over 80 percent of India’s apparel market comprises garments priced below Rs 1,000," the industry body added.

“CMAI believes this measure is completely misplaced, as it is reportedly introduced primarily to address the Inverted Duty Structure existing in a section of the Industry – and this sector is not more than 15 percent of the total industry. To resolve a problem which exists in 15 percent of the Industry, therefore, this move will adversely impact 85 percent of the total industry," said Masand.

K.E. Raghunathan, convenor of the Consortium of Indian Associations, said the government has employed a carrot and stick approach. On the one hand, it announced the Production Linked Incentive scheme for the sector, and on the other, it called for the increase in the GST rates by 7%. 

“A masterstroke to penalise both consumer and the manufacturer in one shot,” he remarked.

The hike came after the recommendations of the GST Council.