NEW DELHI : The sharp increase in goods and services tax (GST) on textiles, scheduled to come into force from 1 January, is expected to be rolled back due to pressure from businesses and traders.
Friday’s GST Council meeting has been called exclusively to discuss the rollback of the tax rate increase from 5% to 12% on several items used in the textiles sector, three state ministers said.
At its last meeting in September, the GST Council corrected the inverted duty structure—a situation where tax on raw materials is more than that on finished products—in the sector by raising rates on finished goods.
The council raised GST on 18 items, including woven fabrics of cotton, silk and wool, coir mats, matting and floor covering, apparel and clothing accessories of sale value up to ？1,000 from 1 January. An increase was also approved for footwear that cost up to ？1,000 a pair, but the council may not consider a similar rollback for it.
On Thursday, Rajasthan technical education minister Subhash Garg said the GST Council meeting was called exclusively to discuss the rollback of GST hike. “I think it is desirable to do that. Economies like Bangladesh are competing with India (in world markets). I think the council will consider a rollback," Garg said.
Delhi deputy chief minister Manish Sisodia said that several businesses and small traders had sought relief on the proposed tax increase.
“Many textile industry representatives have met me. They have submitted that the GST rate increase in the sector from 5% to 12% is not in the interest of businesses and small traders. They have appealed for a rollback of the tax increase and bring it back to 5%," Sisodia told reporters on Thursday. The minister also said that he would bring it to the council’s notice.
West Bengal urban development and municipal affairs minister Chandrima Bhattacharya said the state was not in favour of the increase in the first place. The ministers are in the capital for the Council meeting and budget consultations with the Union finance minister Nirmala Sitharaman.
The Gujarat government, too, appealed to the Centre to put the tax rate hike on textiles on hold as implementing the rate change may result in a drop in demand, said a person familiar with the discussions between central and state governments. The person said that the single-point agenda of Friday’s meeting is to consider putting the rate-hike decision on hold.
The tax increase addressed the distortions in tax administration, but the fact that the textile sector is a significant employer and a price increase on apparel and footwear may depress demand is forcing a review.
There was no formal response to an email sent to the finance ministry seeking comments. However, finance minister Nirmala Sitharaman is scheduled to brief reporters on Friday after the Council meeting.
In a statement issued in the evening, Sisodia said that the Delhi government would protest against the tax rate hike on textiles and won’t suppress the common man’s voice. Textile traders opposed the increase in rates from 5% to 12%, and their demands are justified, the statement said.
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In addition to the tax rate changes in textiles and footwear sectors, several other changes meant to boost tax compliance will also take effect from 1 January.
These include denial of input tax credit in cases where suppliers have failed to meet the reporting requirements and introduction of restrictions on filing returns related to sales in cases of default in filing summary tax returns for the previous tax period.
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