Higher GST on garments may sink 95K SMEs: Industry body

The standardisation of GST rates on garments at

12 per cent can potentially close down up to 95,000 small and medium enterprises and put up to 10 lakh jobs at risk, finds the Clothing Manufacturers Association of India (CMAI).

The government has standardised the GST rates of all garments at 12 per cent in order to correct the inverted duty structure. The new rates will come into effect from January

2022. However, this will increase the GST rates on cotton garments priced less than Rs 1,000 from 5 per cent to 12 per cent.

The 7 per cent tax increase on lower-priced garments can bring down the demand in the industry by 2.3 to 2.7 per cent, in volumes. The overall apparel textile market is valued Rs

5.4 lakh crore at the retail level. Of this 75-80 per cent is natural fibre garments and the rest, man-made fabric garments. Moreover,

85 per cent of the end retail market is currently taxed at 5 per cent.

A reduction in demand for lower-priced products can put 67,000 to 95,000 small and medium enterprises under the threat of closure, according to the analysis by the CMAI. Currently profit after tax margins are 1-3 per cent for small and medium-scale industry players in spinning, weaving and garmenting.

According to Sanjay Jain, chairman, textile committee, Indian Chamber of Commerce, MSMEs mainly supply low-end garments, so a reduction in

consumption would badly impact the struggling segment. Further, this could potentially affect 7 lakh to

10 lakh direct jobs in the sector.

The textile sector currently employs 39 million people, excluding those employed in farming, and out of this 16 million are employed in blue collar jobs related to domestic production.

By dragging lakhs of SMEs to the verge of closure and putting jobs at risk, the government could earn only an additional Rs

7,000 crore to Rs 8,000 crore in tax collection.

As per the CMAI analysis, if the government retains the GST rate at 5 per cent for garments priced below Rs 1,000, the demand can improve by 0.25 to 0.50 per cent. This could increase direct jobs by 30,000 to 40,000. The tax revenue of the government from garments will only reduce by Rs 1,500 crore.

"Post-GST introduction, compliance has grown multi-fold in the unorganised segment of the industry, as at 5 per cent there was no financial gain in evading GST. However, it is feared at 12 per cent, the unorganised segment will once again go back to old days," said Jain.