All types of footwear, most textile products to have GST of 12%
Council decides to do away with inverted duty structure
All footwear, irrespective of prices will attract Goods & Services Tax (GST) at 12 per cent while barring cotton, all textile products including readymade garments will have GST at the rate of 12 per cent. This will be possible as GST Council has decided to do away with inverted duty structure (IDS). It could result in rise in prices of low-priced products.
An ‘Inverted duty structure’ means a higher duty on inputs and a lower levy on finished products. This results in a higher refund to industry which affects the cash flows for companies and revenue collections for the government. Also, consumers do not gain anything,
In its meeting on Friday, the Council decided: “GST rate changes in order to correct inverted duty structure, in footwear and textiles sector, as was discussed in earlier Council Meeting and was deferred for an appropriate time, will be implemented with effect from January 1, 2022.” However, post the meeting, rates were not announced.
A senior government official told BusinessLine that now rates will be not be levied on the basis of price bucket and it will be a uniform rate of 12 per cent. As on date the GST rate, is 5 per cent for products with value up to ₹1,000 per pair. Items priced above ₹1,000 attracts a rate of 18 per cent. Another official explained that more than two-thirds of the products are sold at price up to ₹1,000 and because of higher rate of inputs, refunds go up to almost ₹2,000 crore per annum.
Ramesh Kumar Dua, Managing Director, Relaxo Footwear said having one GST rate for footwear sector is ideal as it will help bring in transparency in the system and remove any scope of manipulation done for tax evasion especially in the unorganized sector. He said the move to correct the inverted duty structure will help ease the challenges faced by the industry with regards to getting refunds. A senior executive with a leading footwear major added that a single rate will be a good move as it will simplify the framework and resolve all confusions in the sector.
An official said that with the correction of inverted duty structure in textile sector the rate on cotton yarn will continue to be 5 per cent while it will be 12 per cent on mandmade fibre, yarn, readymade garment, fabric and dying. As of now for garments and made-up articles, rate is 5 per cent of the sale value not exceeding ₹1,000 per piece and 12 per cent for articles of sale value exceeding ₹1,000 per piece. Here on, all will have GST at the rate of 12 per cent.
(With inputs from Meenakshi Verma Ambwani)