GST hike on textiles put on hold; GoM to recommend rate by February

Representational Photo
Representational Photo

New Delhi, Dec 31: Heeding to demands made by several states, the GST Council on Friday put on hold a decision to hike the tax rate on textiles to 12 percent and referred to a panel of state ministers to recommend rate by February, Union Finance Minister Nirmala Sitharaman said.

The panel, the highest decision-making body for indirect taxes, met under emergency provisions after states made a request for deferring the tax rate hike on textiles, from the current 5 percent, to be effective from January 1, 2022.

Currently, the tax rate on manmade fibre (MMF) is 18 percent, MMF yarn 12 percent, and fabrics are taxed at 5 percent. In the Council meeting in September, it was also decided that a 12 percent uniform GST rate would apply on textile products, except cotton, including readymade garments.

Briefing reporters after the Council meeting called under 'emergency provisions", Sitharaman said the Council had in September decided to correct the duty inversion in textiles with effect from January 2022.

"From December onwards... representations started coming and on December 29, the letter also came from the Gujarat FM and therefore the emergency meeting (was called). The decision of the emergency Council meeting today is that we retain the status quo and not go to 12 percent, from 5 percent, meaning don't do the correction now in case of textiles," she said.

Sitharaman said states also raised the issue of long-term ways by which the Council could look at correcting duty inversion and also have a plan for revenue generation.

"The decision of the Council was that the rate rationalisation committee would also look at textiles in their review, and submit the report by February which I agree to have it circulated to all ministers and post that to hold either at end February or sometime in March a Council meeting in which the committee's recommendation or report will be discussed," she said.

The Group of Ministers on rate rationalisation is headed by Karnataka Chief Minister Basavaraj Bommai, and also include Finance Ministers of West Bengal, Kerala and Bihar.

Stating that every state agreed that there is a duty inversion in textiles and there is a need to correct it, Sitharaman said "the overriding push" was probably because a certain segment of the textile industry said it would immediately cause an increase in the price.

"That is why it has gone back to the committee to actually do a more indepth study and come and present it to the Council," she said, adding there are many complexities in taxation of textiles.

States like Gujarat, West Bengal, Delhi, Rajasthan, Tamil Nadu, Chhattisgarh and Andhra Pradesh have said they are not in favour of a hike in Goods and Services Tax (GST) rate on textiles to 12 percent, from 5 percent, with effect from January 1, 2022.

"The industry while representing, inter alia, felt that there could be a temptation of not coming into the formalised system and the immediate pressure to be in the realm of informal segment of the business. Also the second was that it would burden the lower end of the buyers," Sitharaman added.

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