Footwear manufacturers rue high tax, dual rates

The proposed tax structure for footwear under the goods and services tax (GST) has manufacturers unhappy. While the 18 per cent tax bracket for footwear priced over ~500 could lead to an increase in product prices, the ‘dual taxation’ structure will add to their woes, as pricing will get more complex, they say.

GST, many fear, could hit growth prospects of the ~30,000crore domestic industry, already under margin pressure. Signs of worry began to appear soon after the Council announced on Saturday that footwear priced below ~500 would be taxed at 5 per cent and the rest at 18 per cent.

Dual taxation has left “scope for distortion” for organised players, says Adesh Gupta, chairman of the Council for Footwear, Leather and Accessories (CFLA) and chief executive officer of Liberty Shoes. “A dual tax structure usually creates confusion and increases complexity. Also, we were expecting a 12 per cent tax rate at most. While we are still assessing the impact, additional burden will eventually have to be passed on to consumers,” says Harkirat Singh, managing director, Woodland Worldwide.

According to the CFLA, prices of footwear are set to rise up to seven per cent from July. “The government is least bothered about growth of the industry. The 13 per cent gap between the two tax slabs will have to be passed on to the consumers as companies are already under margin pressure,” says Gupta.

Major footwear manufacturers had been lobbying the government through the past year for a uniform tax structure for all categories of footwear. CFLA had made several representations to Finance Minister Arun Jaitley, Commerce Minister Nirmala Sitharaman and other government representatives. Two of their key demands were to keep footwear under 5 per cent tax bracket and discourage imports from China, which according to the council holds over 20 per cent share of the market by value.

Jharkhand Chief Minister Raghubar Das had written to the finance minister requesting similar tax rates for footwear and apparel, citing the importance of the sector in India’s manufacturing capabilities. Size of the domestic footwear market: Imports from China: or 20 million pairs a year

India ranks distant second behind China

Rank 1 2 3 4 India Brazil Vietnam Annual production* 14,200 2,209 900 770

Market share

Modern retail 40 Unorganised retail 60

Type of footwear based on material

Synthetic 80 Leather 20

“GST rates have not brought any good news for companies. Organised players will not grow any faster and their profitability will be hit further. However, small players might get some relief, as they will not have to pay taxes on a par with bigger firms,” says Deepak Chhabra, managing director, Crocs India.