GST could inflate garment prices

Branded apparels may get costlier due to the Goods and Services Tax (GST), expected by April 2017. The tax incidence on branded apparels and other finished textile products could rise at least three to four per cent, assuming textiles come under the merit list of GST.

Branded garments may be put under the luxury tax slab, which could be higher than 18 per cent. As a value chain, many inter-state transactions happen in textiles. Hence, GST is likely to bring in ease of doing business across the whole value chain.

The immediate incidence of three or four per cent, assuming a 12 per cent rate and an almost 10 per cent incidence in case of 18 per cent, will result in inflationary trends. However, a merit rate of 12 per cent for fabrics and 16 to 17 per cent for garments tends to be revenue neutral. In such a case, it may not have any inflationary pressure on garments.

The tax neutral rate in textiles comes to around eight or nine per cent. Once GST comes into play, the industry is expecting a lower rate of 12 per cent, out of the two slabs of 12 and 18 per cent. But even at a lower rate, the sector will end up paying higher duties, thereby increasing prices. Hence, from the textiles perspective, it will be inflationary.