Textile duty hike put off by GST Council

Goods and Service Tax (GST) Council today deferred the implementation of 12% uniform rate of tax on the textile products which was supposed to be imposed from January 1, 2022.

Announcing the decision of the Council, finance minister Nirmala Sitharaman said in a press conference on Friday, “We have retained the status quo on the textile and not go to 12% from 5%. This means that the correction to the duty inversion will not be done now in the case of textile.” Sitharaman added that textile was the only issue discussed in today’s meeting.

The FM said that since the GST on textile involved duty inversion, a detailed discussion was held in the Council today on the matter as the issue is affecting a lot of commodities. Duty inversion takes place when the taxes on the input are higher than the taxes on the output.

“Because it is a question of inversion, several ministers spoke about the long-term ways in which it can be looked into and have a plan for revenue generation. Committee headed by Karnataka CM [Basavaraj Bommai] is looking into rate rationalisation. The same committee will look into GST on textile,” Sitharaman said adding that the committee will submit its recommendations by February next year.

On December 29, Gujarat finance minister Kanubhai Desai had written to FM Sitharaman against GST hike on textile from 5% to 12%. Experts, however, believe that a permanent solution is needed in the matter.

"While the rollback of the GST rate hike proposed on many textile products would benefit the sector, specially SMEs and MSMEs who operate in this employment intensive sector, it would be necessary to find out a solution in future to the problems of inverted duty structure in the textile sector," said M S Mani, partner, Deloitte India.

“The decision to rollback the proposed GST rate increase case of the textile products would also make the footwear sector expect a similar treatment in future. The proposed recommendations of the rate rationalisation committee expected in the next two months would be keenly watched by many sectors, including the textile sector,” Mani added.

“The decision to defer the GST hike on textile sector is a welcome move, especially in view of the impending third wave. Ever since the hike was announced, the textile industry has continously expressed its apprehensions and various representations were also filed with the government,” said Rajat Bose, partner, Shardul Amarchand Mangaldas & Co.

In its September meeting, the GST Council had increased the tax rate on textile. GST was hiked to 12% on man-made fibres and ready-made garments with effect from January 1, 2022. However, the trade bodies opposed the move fearing loss in business.