GST hike on footwears, textiles will render 15 lakh people jobless: Amit Mitra

Amit Mitra, Principal Chief Advisor to Chief Minister and Finance Department, West Bengal, on Friday urged Finance and Corporate Affairs Minister Nirmala Sitaraman to call for a GST Council meeting at the earliest and revert the decision to increase GST rate to correct the inverted duty structure in footwear and textiles sector.

The Council’s 45th meeting, held on September 17, had proposed to increase GST on textiles and footwear to 12 per cent from the current 5 per cent, effective January 1, 2022.

‘No in-depth discussion’

According to Mitra, the 7 per cent additional GST would lead to the closure of an estimated one lakh small and medium size units and render close to 15 lakh people jobless.

The textiles sector is estimated to be close to ₹5.4-lakh crore, and over 80 per cent comes from natural fibres such as cotton and jute.

The sector employs approximately four crore people.

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“The 45th meeting of the GST Council did not discuss this matter at any depth. This should have been discussed threadbare. It is estimated that one lakh small units will close because of this 7 per cent additional GST. Job loss including ancilliaries is estimated to be close to 15 lakh,” he said at a virtual press conference to discuss the impact of GST increase on the textile industry in the country.

Formal to informal

This apart, this hike in GST rate is likely to push the smaller units, which have recently become formal by registering under GST, to become informal again.

An estimated one lakh units may choose to become informal and may go out of the tax purview.

“The current tax levels on man-made fibre sector is 18 per cent, so what they are saying is you are paying 18 per cent as input but when you are selling it as an output, you are only paying 5 per cent; so the duty structure is inverted. But the problem is only 15 to 20 per cent of the industry is man-made fibre, the remaining is natural where there is no inverted duty structure. So, only for that 15 per cent inverted duty structure correction, what you are doing is creating a situation where one lakh small units will close, 15 lakh people will become unemployed.

“This is a huge impact and on this, there was no discussion in threadbare nature. This is a very dangerous situation,” he said.

According to him, the total tax collection from the sector is close to ₹19,000-21,000 crore and it accounts for only two per cent of GST collections.

The estimated revenue gain from this increase is likely to be close to ₹7,000 crore.

However, this may be difficult to achieve since a large number of units may prefer to become informal again thereby, resulting in a huge loss.

“I have inputs from various chambers of commerce which suggest that they would not be able to handle this 7 per cent additional GST burden becuase they do not have the capital resources as they run on thin margins,” he pointed out.

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