Rajasthan increases VAT to 14%, irks garment industry

Branded garment manufacturers in Rajasthan are up in arms against the state government. The reason: The state’s budget announced last week has raised the VAT on readymade garments (branded garments only) from 4 per cent to 14 per cent. As per Rajasthan Commercial

Taxes the definition of Branded Garments is: Any brand registered with or applied to the Trade Mark Act 1999. This has put at stake the business of a large number of garment producers and sellers in the state. As they say readymade garment prices in their state will go up and this will affect their business directly.

“The branded garment manufacturers have a fixed retail price on garments, which do not change state wise. The Rajasthan government is trying to increase its revenue by directly harming the entire garment industry,” says Ashish Gupta of Rajasthan Readymade Vastra Nirmata and Vikreta Sangh.
They are urging the government to rethink the issue, as a large number of businesses are at stake, along with the livelihood of lakhs of people. Their argument is since the VAT in other states ranges between 4 to 5 per cent only there is no reason why Rajasthan government should charge higher. Moreover, since MRP's of all branded garments are fixed at the manufacturers end pan India, how can they change it only for Rajasthan?

Gupta argues the state government has divided the garment industry into four major categories: first, are manufacturers from Rajasthan; second are retailers selling unbranded garments (MRP below Rs 700 only); third constitutes company-owned EBO's; and the fourth are MBO's and large format stores (LFS). Gupta says “They government is trying to give relief to the first two categories by putting them into the category of 4 per cent VAT. The third category is those of company-owned EBOs. The feeling is they should be able to absorb the higher rate of VAT at 14 per cent. In the fourth category of business are MBO's and large format stores, here companies will change the MRP's,” he says.

Gupta says by categorizing the business, the government is simply playing a game of 'Divide and Rule', which is even more harmful for the trade. His suggestion is for generating extra revenue, the state government may increase the existing VAT of 4 per cent to 5 per cent as has been done in many other states.

Meanwhile, the Clothing Manufacturers Association of India (CMAI) has also petitioned the Rajasthan government to rethink its move. “CMAI has moved rapidly on the matter of unjustified increase in VAT on sale of readymade garments in Rajasthan, through various channels. I am hopeful that the government will see reason and reconsider its decision,” says Rahul Mehta, President, CMAI.