Low-cost garments to get 2-3% cheaper under GST RATE IMPACT

The maximum retail price (MRP) on garments is likely to decline by two to three per cent with new arrivals expected in a month, due to a lower levy under the new goods and services tax (GST) than earlier.

Last month, the GST Council had fixed the rates at five per cent on ready-made garments worth up to ~1,000 and at 12 per cent for those above that price, against the existing uniform central levy of seven per cent. And, 18 per cent and 28 per cent on some machinery products in the value chain under GST against the earlier rates of up to 25 per cent and up to 35 per cent, respectively.

“The textile industry, therefore, is going to benefit through lower levies on various products in the garment value chain,” said Kavita Gupta, textile commissioner, Government of India, on the sidelines of the 65th National Garment Fair organised by the Clothing Manufacturers’ Association of India (CMAI).

On textile traders’ ongoing protest, she said, “Getting familiar with GST is a gradual process, which textile players would be acquainted with slowly.”

The industry is, meanwhile, gearing up to pass on the benefit to consumers with proportionate reduction in the MRP with the new stocks coming into the market. Many had slowed their manufacturing activity during the past few months due to uncertainty over GST rates. These were fixed in June but garment manufacturers waited to see if GST would actually take effect from July 1.

“Garments worth below ~1,000 are going to be cheaper by two to three per cent under GST. Above this threshold, they're going to become costlier by the same tune. Given that the input credit is granted under GST and contribution of the below-~1,000 threshold is at least double than that of the above-~1,000 types, the average price decline would be two to three per cent,” said Rahul Mehta, president of CMAI.

Rakesh Biyani, joint managing director, Future Retail, said: “GST would help in ‘ease of doing business’. Instead of a multi taxation system which varied from state to state, we would have a single tax structure, beneficial for the industry. Also, compliance would become easier now.”

Experts add that discounts and freebies would come 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 down in the new tax structure, due to a squeeze on margins. “Garments being a seasonal product, we need to clear shelves to accommodate fresh arrivals, possible through promotions. Hence, seasonal promotional effort would continue. But, the discount period will certainly decline, due to a fall in the average top line and bottom line of garment manufacturers. A few years ago, the industry used to offer discounts occasionally, which have spread almost across the year, hitting the profit,” said Mehta.