Higher tax on apparel in India puts pressure on domestic and foreign fashion brands

Based on a Reuters report, global fashion brands are concerned about a new tax reform in India that will increase taxes on apparel priced above Rs 2,500 (approximately 29 dollars).

The reform, considered the biggest tax overhaul in eight years by Prime Minister Narendra Modi's government, will cut the Goods and Services Tax (GST) to 5 percent on garments priced below that threshold. However, items priced above Rs 2,500 will now be subject to an 18 percent GST, a significant increase from the previous 12 percent rate. This change, which is set to take effect on September 22, will put pressure on brands like Zara, Levi Strauss, Gap Inc., Nike, H&M, and Uniqlo.

The tax hike is a particular concern for foreign brands as the premium apparel segment, worth 70 billion dollars, is largely driven by young, brand-conscious consumers who are still price-sensitive. One executive for a foreign brand in India said that the Rs 2,500 price point is "basic now" and that the higher tax could prevent expected growth.

The Clothing Manufacturers Association of India has warned that the higher rate could be a "death knell for the industry," since items above that price are widely consumed by the middle class. This tax increase comes as a "double whammy" for domestic manufacturers who are already dealing with a 50 percent tariff on exports to the U.S. imposed by President Donald Trump.

While the tax hike will also apply to luxury brands like Louis Vuitton and Dior, another garment executive told Reuters that it would have a limited impact on India's wealthiest consumers, though some may choose to buy abroad to save on taxes.