Low-cost garments to become cheaper by 2-3% on low GST levy

However, discounts and freebies seen coming down under new tax regime due to squeeze in margins

The maximum retail price (MRP) on garments is likely to decline by 2-3 per cent with the rollout of new arrivals expected in a month, due to lower tax levy under the Goods and Services Tax (GST) than prevailing previously.

The GST council, in its meeting held last month, fixed the tax rate at 5 per cent on readymade garments priced at Rs 1,000 or less, and 12 per cent on those priced beyond, against the existing uniform central levy of 7 per cent. However, the tax rate works out to 18 per cent and 28 per cent on some machinery products in the value chain under GST against their prevailing ceiling rates of 25 per cent and 35 per cent respectively.

"The textile industry, therefore, is going to benefit certainly under the GST regime through lower levies on various products in the garments value chain," said Kavita Gupta, Textile Commissioner, Ministry of Textiles, on the sidelines of 65th National Garment Fair organised by the Clothing Manufacturers' Association of India (CMAI).

Talking about textile traders' protest, Gupta said, "Traders are going to be familiar with GST gradually. It is a gradual process which textile players would be acquainted with slowly."

The industry, meanwhile, is gearing up to pass on the benefit to consumers with proportionate reduction in the MRP on new stocks coming into the market. Many textile players slowed their manufacturing activity during the last few months due to uncertainty over GST rates. After the GST rate was fixed in June, garment manufacturers awaited its implementation effective July 1, which created doubts among traders. Now, the shadow of its implementation is getting cleared gradually.

"Garments worth below Rs 1,000 are going to be cheaper by 2-3 per cent under the GST regime. But, those above this threshold are going to become costlier by as much. Given that the input credit is granted under GST regime and that the contribution of garments priced below Rs 1,000 is at least twice that of costlier ones, the average price decline in garments would be in the range of 2-3 per cent," said Rahul Mehta, President, the Clothing Manufacturers Association of India.

Confirming the passing on of the benefit to consumers, Rakesh Biyani, Joint Managing Director, Future Retail Ltd, said, "GST will help the textile industry in 'ease of doing business'. Instead of going for a multi-taxation system which varies from state to state, we will have a single tax structure now which is beneficial for the industry. Also, compliance will become easier."

Meanwhile, experts estimate discounts and freebies to come down under the new tax structure due to squeeze in margins.

"Garments being the seasonal product, we need to clear shelf to accommodate fresh arrivals which are possible through promotions. Hence, seasonal promotional efforts would continue. But the discount period will certainly decline due to a fall in the average topline and bottomline of garment manufacturers. A few years ago, the industry used to offer discounts occasionally which have spread almost across the year. Thus, garment manufacturers have taken a hit on their profit through promotions," said Mehta.
 

Rate Impact
 

• The GST Council had fixed the rates at 5 % on ready-made garments priced up to ~1,000 and at 12% for those above that price, against the existing uniform central levy of 7%
 

• Experts say garments of above ~1,000  going to become costlier by 2-3%
 

• Experts say discounts and freebies would come down in the new tax structure, due to a squeeze on margins
 

• Many manufacturers had slowed their production activity during the past few months due to uncertainty over rates