GST Council reconsidering rates on textiles

Subject – Economy

Context – GST Council defers tax rate increase on textiles

Concept –

The GST Council in its 45th meeting in September had recommended making certain rate changes for footwear and textiles to correct the inverted duty structure.
An inverted duty structure arises when the taxes on output or final product is lower than the taxes on inputs, creating an inverse accumulation of input tax credit which in most cases has to be refunded.
Inverted duty structure has implied a stream of revenue outflow for the government prompting the government to relook the duty structure. For footwear, the government refunds around Rs 2,000 crore in a year.
In November, the Finance Ministry notified a uniform 12% rate for manmade fibre (MMF), yarn, fabrics and apparels, along with a 12% uniform rate for footwear. The rate hike was notified to be made effective from January 1.
At present, tax rate on manmade fibre, yarn and fabrics is 18%, 12% and 5%, respectively.
- Apparel and clothing up to Rs 1,000 per piece currently attracts 5% GST.
- Synthetic and artificial yarn have been changed to 12% but natural yarn like cotton, silk, wool yarn are still in 5% slab.