The Central Board of Indirect Taxes (CBDT) has announced a rise in the goods and services tax (GST) rate from 5 percent to 12 percent, which will affect garments, textiles, and footwear costs starting next year. From January 1, 2022, the increased GST rate on the categories will be in effect.
However, GST rates on or some synthetic fibres and yarn have been reduced to 12 percent from 18 percent, bringing rates in line with the rest of the textile industry. This also resulted in the removal of distortions, resulting in an inverted duty structure. The inverted duty structure occurs when the tax rate on inputs is higher than the tax rate on the completed output.
In its September meeting, the GST Council promised to fix the inverted duty structure in textiles and footwear. The same will take effect on January 1, 2022, but the effective rates have yet to be determined. The GST rate for all clothes will be 12 percent beginning January 1st. Previously, it was 5 percent on clothes with a value of up to Rs 1,000 per piece. While experts applauded the action, the apparel industry expressed its displeasure, claiming that the inverted duty system only impacts a small percentage of the people.
The Clothing Manufacturing Association of India (CMAI) expressed its disappointment with the increased GST on clothes that took effect on January 1. The tax hike comes at a time when raw material, yarn, packing material, and freight prices are all on the rise, putting strain on the business. Even without the GST, the market was expecting a price increase of 12-15 percent, according to the industry association.
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