GST hike on textiles deferred amid industry pushback

The GST Council in an emergency meeting on Friday decided to withdraw its decision to hike the goods and services tax on textiles up to Rs 1,000 to 12% from January 1 from the existing 5%.

A similar demand for tax rationalisation for footwear below Rs 1,000 was not agreed to in the meeting. As a consequence, with effect from January 1, 2022, all footwear, irrespective of prices, will attract GST at 12%.

Also, there was no discussion on extending the period of compensation cess to five more years beyond June 2022.

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Finance Minister Nirmala Sitharaman said that she got representations from many states saying the decision would impact the lower end of buyers.

“This was not the intent,” she said.

”While the decision has come in a day before the rate change for textiles was to go live, it is a welcome one and should benefit the textile sector as well as consumers. An alternate mechanism to correct the inverted duty structure could also be to enhance the refund route to cover a refund of input services as well, which could address the accumulation in the hands of the manufacturers, said Mahesh Jaising, Partner, Deloitte India.

Issue related to the GST rate on textile will be sent to the rate rationalisation committee which will submit a report by February, the finance minister said.

Also Read | Garment traders in Delhi shut shops against proposed GST hike on textiles

The Council in its previous meeting on September 17 had decided to correct the inverted duty structure in footwear and textile sectors.

Gujarat, West Bengal, Delhi, Rajasthan and Tamil Nadu had demanded rollback of the proposed hike on textiles.

States including Kerala raised the demand for extension of the compensation period for five years but there was no response.

Traders' body CAIT hailed the decision on textiles saying it would have shut shops of lakhs of small companies but said the Council should also adhere to the demand of the footwear industry.

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