GST Council defers hike in rates on textiles from 5% to 12%

Several states said in the meeting that there was no clarity on GST to be imposed on apparel, clothing and textile products, says Andhra FM

The Goods and Services Tax (GST) Council has decided to defer the hike in tax rate on textiles from 5% to 12%, announced Union Finance Minister Nirmala Sitharaman on Friday.

At a media briefing, Sitharaman said the GST meeting was called under the "emergency provision", and that the GST Council only had a brief meeting with one agenda.

"Gujarat FM requested for deferment of decision taken in the Sept Council meet on inversion of tax structure," she said.

Hike of GST rate on textiles from 5% to 12% was to come into effect from January 1.

GST Council has decided to defer the correction of inverted duties for textiles and will again be referred to the "rate rationalisation panel", said FM.

The Council's decision comes after several states on Thursday flagged higher tax rate on textile products from January 1 and demanded that the rate hike be put on hold.

Andhra Pradesh Finance Minister Buggana Rajendranath Reddy told reporters after the 46th GST Council meeting chaired by Union Finance Minister Nirmala Sitharaman that several states said in the meeting that there was no clarity on GST to be imposed on apparel, clothing and textile products.

"Several states including Andhra Pradesh requested the Council to take back the earlier decision to increase the GST on textiles from current 5% to 12% from January 1 2022," he said.

Even there was no clarity on the rate of GST that would be imposed on nylon and cotton fabric as well as man-made and natural textiles.

There were also no estimates available with the Council on possible increase in refund if to be given, he said.

Currently, tax rate on man made fibre (MMF) is 18%, MMF yarn 12%, while fabrics are taxed at 5%.

Stating that any hike in GST on textiles will impact Andhra Pradesh the most, Reddy said it is because there are about 3 lakh handloom weavers and most people wear cotton clothes unlike nylon in other states.

"...we requested the Council to take a call on increasing the GST on textiles after conducting a thorough study and assessing the data," he added.

Friday's GST Council meeting is significant as it is taking place ahead of the Union Budget for 2022-23, which is scheduled to be presented in Parliament on February 1, 2022.

In the pre-budget meeting chaired by Union Finance Minister Nirmala Sitharaman, states like Gujarat, West Bengal, Delhi, Rajasthan and Tamil Nadu said that they are not in favour of a hike in GST rate on textiles to 12 per cent, from 5 per cent currently.

The Council, in its previous meeting on September 17, had decided to correct the inverted duty structure in footwear and textile sectors. With effect from January 1, 2022, all footwear, irrespective of prices, will attract GST at 12 per cent, and all textile products, except cotton, including readymade garments were to have 12 per cent GST.

West Bengal's former finance minister and current advisor to state Chief Minister Amit Mitra had earlier urged the Centre to roll back a proposed hike in textile from 5 per cent to 12 per cent saying this would lead to closure of around 100,000 textile units and 1.5 million job losses.

Telangana Industries Minister KT Rama Rao too had made a case for withdrawal of its proposed plan to increase GST rates.

Industry too has opposed the rise in tax from 5 per cent, citing higher compliance cost especially for the unorganised sector and MSMEs besides making poor man's clothing expensive.