Traders represented by the Confederation of All India Traders (CAIT) on Tuesday said that the increase would put a ‘big financial load’ on over 85 percent of people in India who purchase clothes beneath a thousand rupees. At a video conference by the Ministry of Textiles, trade associations under the CAIT umbrella said that the weapon of GST hike is still swinging over the heads of textile and related businesses even as they thanked the government for postponing the hike for now.

CAIT said in a statement citing trade leaders “The increase in GST will affect the country’s textile trade, on the other hand, more than 85 percent of the community, who buy clothes of less than one thousand rupees, will have a big financial load upon them,” The government had deferred the GST hike on textiles from 5 percent to 12 percent. The decision was taken at the GST Council’s 46th meeting on Friday under the chairmanship of Finance Minister Nirmala Sitharaman.

In November 2021, the government had notified uniform GST at 12 percent on man-made fiber (MMF), MMF yarn, MMF fabrics, and apparel to address the inverted tax structure in the MMF textile value chain. The changed rates were to come into effect from January 1, 2022. Textiles Ministry had cited in a statement that ‘long pending demand’ from textiles and apparel industry under sales tax earlier and then under VAT and finally under GST regime for removal of inverted tax structure on the MMF value chain. The GST on MMF, MMF Yarn, and MMF Fabrics was 18 percent, 12 percent, and 5 percent respectively.

“The taxation of inputs at higher rates than finished products created a build-up of credits and cascading costs. It further led to the accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry,” the ministry had said.

However, the inverted duty structure would still remain after GST hike as the raw material – purified terephthalic acid (PTA) and mono ethylene glycol (MEG) — required for MMF fiber and filament manufacturers was still capable of 18 percent GST, according to a draft presentation prepared by the Polyester Textile and Apparel (PTA) Association and shared earlier with Financial Express Online.

“The hike would only cover half the portion of MMF industry and left out its backward manufacturing structure which is the basic thing for the government to do first. The government should reduce GST on PTA and MEG also from 18 percent to 12 percent so that the whole MMF value chain is covered,” RK Vij, General Secretary, PTA Association had told Financial Express Online.

Nirmala Sitharaman addressing a press conference after the GST Council meeting had said that a committee (Tax Rate Rationalisation Committee by GST Council), which is already looking at rate rationalization, will again review textiles along with other items and submit a report by February.

“While the rollback of the GST rate hike proposed on many textile products would benefit the sector, especially 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. The decision to roll back the proposed GST rate increase case of the textile products would also make the footwear sector expect similar treatment in the future. The proposed recommendations of the rate rationalization committee expected in the next two months would be keenly watched by many sectors, including the textile sector,” said M.S. Mani, Partner, Deloitte India.

CAIT said that Goyal has directed Textiles Ministry officials to interact with traders on the issue. On Monday, Tirupur Exporter’s Association President Raja M Shanmugham had also requested Goyal to remove cotton import duty. Shanmugham also informed the minister that Textile Mills Associations, Southern India Mills Association, Tamil Nadu Spinning Mills Association, and Indian Texpreneurs Federation were told to advise their members not to increase the cotton yarn prices disproportionate to increase in cotton prices as that will affect the value-added knitwear garment sector.