Inverted duty for textiles to be relooked amid industry pushbacks

The tax rate on manmade fibre, yarn, and fabrics is 18%, 12%, and 5%, respectively

February 23, 2022

In November 2021, the Finance Ministry decided to impose a 12% tax on textile items

Currently, a 5% tax is levied on the sale value of up to INR 1,000 per piece

The Confederation of All India Traders met with Union Textiles Minister Piyush Goyal, who opposed the revised indirect tax rates

The GST rate will harm 85% of the industry, leading to higher garment prices

The government’s decision to increase goods and service tax (GST) on textiles amid rising input costs is set to be revised. In November 2021, the Finance Ministry decided to impose a 12% tax on textile items like manmade fibre and finished goods from January 1, 2022, to rectify the inverted duty structure. At present, a 5% tax is levied on the sale value of up to INR 1,000 per piece.

Currently, the tax rate on manmade fibre, yarn, and fabrics is 18%, 12%, and 5%, respectively. A uniform tax rate is expected to address inconsistencies that arise when the tax rate on raw materials is higher than the tax on the finished product. Inputs into the man-made fibre fabric attract a GST of 12-18%, which is higher than the 5% on fabrics.

The Confederation of All India Traders met with Union Textiles Minister Piyush Goyal, who opposed the revised indirect tax rates. Goyal stated that “a status quo” needs to be maintained and changes should be made after consulting with the textile ministry and industry stakeholders.

It is believed that this GST rate will have an adverse impact on 85% of the industry, leading to higher garment prices, which will hurt consumption. As per various industry experts, the 7% increase would have a mixed effect on textile manufacturers as it would increase tax burden and working capital requirements.

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