The decision to increase Goods and Services Tax rate on textiles from 5% to 12% has been put on hold, Finance Minister Nirmala Sitharaman announced on Friday. The finance minister was briefing the media after a meeting of the GST Council.
In the last meeting on September 17, the GST Council had decided to revise the tax rates on textiles and low-cost footwear to 12% from 5%. The decision was aimed at correcting the inverted duty structure in footwear and textile sectors. An inverted duty structure refers to a situation when the tax rates on output or final product is lower than the tax on input.
The new rates were to come into effect from January 1, 2022.
However, in Friday’s meeting, the decision on tax revision of GST on textiles was deferred after many states opposed the move.
“Textile was the only issue of discussion...The council’s decision was that we maintain status quo and not go to 12% from 5%,” Sitharaman said at a press conference. “But since it’s an issue of inversion, several ministers also spoke about what are the long term ways in which council is going to look at in correcting these things.”
However, from Saturday, the tax rate on footwear priced up to Rs 1,000 will rise to 12% from 5%.
A group of state finance ministers tasked with looking at rate rationalisation have been asked to examine the hike on textiles, Sitharaman added.
She said the group has been asked to submit its report by February. “Post that we have a Council meeting where the committee’s report on every item, including textile, will be discussed,” the finance minister added.
Last week, Principal Chief Advisor to West Bengal Chief Minister Mamata Banerjee, Amit Mitra, had described the Centre’s decision to increase tax rates in the textile sector as “very dangerous”.
He had warned that the move would lead to shutting down of about one lakh textile units and result in 15 lakh job losses in the textile and ancillary sectors.
Gujarat, Delhi, Rajasthan and Tamil Nadu had also opposed the move.
The Tamil Nadu government said that the hike will hit Micro, Small and Medium Enterprises, The Hindu reported.
“Alternatively, it may be considered that readymade garments having sale value of above Rs 3,000 or Rs 5,000 be taxed at the higher rate of 12% and allow the present rate of 5% on textiles below this level,” the state’s Finance Minister Palanivel Thiaga Rajan told the GST Council on Friday.
He pointed out that the hike will affect the industry especially at a time when it is “limping back to normalcy” from the coronavirus pandemic.