GST Hike on Apparel: CMAI Raises Alarm Over Industry Impacts
The Clothing Manufacturers Association of India (CMAI) has strongly opposed the proposed GST rate hikes recommended by the Group of Ministers (GoM), led by Bihar Deputy Chief Minister Samrat Chaudhary. According to CMAI, the revisions could have severe repercussions for the apparel sector, particularly for Micro, Small, and Medium Enterprises (MSMEs).
Proposed GST Rate Changes
The GoM has proposed the following revisions to the GST structure for apparel:
- Garments priced up to ₹1,500: Retain the 5% GST rate.
- Garments priced between ₹1,500 and ₹10,000: Increase to 18% GST.
- Garments above ₹10,000: Move to the highest bracket of 28% GST.
These changes are expected to significantly impact the pricing and consumption of apparel across various income groups.
Key Concerns Raised by CMAI
CMAI has outlined several critical issues with the proposed GST hikes:
1. Impact on MSMEs and Employment
The apparel sector, dominated by MSMEs, faces the risk of widespread closures in spinning, weaving, and garment manufacturing units. This could lead to:
- Massive job losses: Estimates suggest that up to 100,000 jobs could be at risk.
- Severe income reductions: SMEs, already operating on thin margins, may struggle to survive.
2. Decline in Formal Retail
Higher GST rates might push both consumers and businesses toward informal markets. Consequently:
- Legitimate retailers may suffer, while illegal merchants gain an advantage.
- Formalisation efforts could be undermined, leading to a shrinking tax base.
3. Pressure on Handloom and Wool Industries
The proposed hikes could severely impact traditional and labor-intensive industries:
- Handloom Sector: With over 2 million weavers, income reductions of up to 25% are anticipated, endangering their livelihoods.
- Wool Industry: Employing 1.2 million in the organized sector and an additional 2 million in related industries, this sector is expected to face heightened financial strain.
4. Inflation and Reduced Consumption
Higher taxes are likely to:
- Drive price inflation, particularly affecting price-sensitive middle-class families and women.
- Dampen consumption during festivals and weddings, further slowing economic growth.
CMAI’s Suggestions
In response to the proposed changes, CMAI has recommended several measures to mitigate the impact:
1. Adopt a Uniform GST Rate of 5%
CMAI has proposed a uniform 5% GST rate to simplify the tax structure and promote industry stability while encouraging compliance.
2. Engage in Stakeholder Consultations
The government should actively consult with industry leaders to better understand the far-reaching implications of these revisions.
3. Focus on Lower Rates and Better Enforcement
Instead of increasing rates, CMAI suggests:
- Retaining lower tax rates to foster voluntary compliance.
- Enhancing enforcement mechanisms to ensure a robust tax base without destabilizing the sector.
Conclusion
CMAI has urged the government to reconsider the proposed GST rate hikes, warning that these changes could destabilize the apparel industry, hinder formalization efforts, and adversely affect the broader economy. By adopting industry-friendly policies and maintaining a simplified tax structure, the government can foster growth and protect the livelihoods of millions who rely on this vital sector.
