economy

Tax rate hike on textiles deferred

Tax rate hike on textiles deferred

Federal indirect tax body, the Goods and Services Tax (GST) Council, on Friday decided to put on hold a decision to raise the tax rate on several items in the textile and apparel industry amid pressure from businesses. Finance minister Nirmala Sitharaman said the GST Council decided to retain status quo and not implement from 1 January a planned correction of tax anomaly in the textile sector that warranted an increase in the tax rate from 5% to 12%. However, the tax rate on footwear priced up to ₹1,000 will go up from 5% to 12% from Saturday as decided earlier. Costlier footwear is taxed at 18% now. Another decision of the Council taken at its last meeting in September that e-commerce entities engaged in food delivery service will be liable to collect tax on behalf of eateries will also kick in from Saturday. Sitharaman said taxation of items used in textiles and apparels, which was the only issue before the Council for discussion on Friday, will be further examined by a ministerial panel led by Karnataka chief minister Basavaraj Bommai which is reviewing tax rates and slabs. “It was decided today in the emergency meeting of the Council that textile will be placed before the committee to be considered along with other items which are anyway being reviewed, the minister said. The ministerial committee will submit its report in February which will be circulated to all ministers and subsequent to that, GST Council meeting will be held either in February end or sometime in March where the committee’s report covering every item needing duty correction will be discussed, the minister explained. Mint reported on Friday that the Council was set to put on hold the tax rate increase in the case of textiles, but not in the case of footwear. Small footwear producers with sales up to 4 million are not required to take GST registration. Sitharaman said the Council appreciated the need for correcting the inverted duty structure—raw materials getting taxed more than the final product—which leads to businesses claiming refund of credit for the extra taxes paid on inputs. The panel led by Bommai and another committee led by Maharashtra deputy chief minister Ajit Pawar are reviewing the GST system comprehensively to make it more efficient and to help improve tax buoyancy. However, the decision to hold the rate increase on textiles items indicates that economic rationale alone cannot drive decision making on mass-use items. “Textile industry is more than a high tax paying industry. They have a role in boosting the economy and is one of the biggest job providing industries, Delhi deputy chief minister Manish Sisodia said in a statement. Deferring the tax rate hike will give the much-needed impetus to the textile sector as a large number of taxpayers was worried about the rate change, said Bimal Jain, chair of indirect tax committee at industry body PHDCCI. Another change that kicks in from Saturday relates to online food delivery platforms. In September, the Council made e-commerce companies into food delivery service liable to collect taxes on behalf of eateries. So far, the tax on food sold has been charged by restaurants. The tax base may increase due to this change as e-commerce operators will be liable to GST even for unregistered restaurants, said Saket Patawari, executive director, indirect tax at consulting firm Nexdigm. Download.

economy 2022-01-02 Livemint