Readymade garments prices may go up 2-3% under GST

The goods and services tax (GST) regime will push up the prices of your readymade garments.

All apparel priced over Rs 1,000 will see a 2-3% increase in prices while branded garments below Rs 1,000 may a dip in prices up to 2% or flat price.

The GST rate for garments of less than Rs 1,000 is fixed at 5% while all that are exceeding Rs 1,000, 12%.

Rohan Shah, a Mumbai-based tax counsel, said, "The effective tax rate will be on the realisable value of the manufacturer. If a manufacturer is realising above Rs 1,000 from the sale of the product, then the effective tax rate is 12%, else it is 5%".

"Under the present tax structure, manufacturers had to pay the excise duty, service tax, the value-added tax and central sales tax (CST). Imports and exports had customs duty, and when the goods are transported from one place to the other it had octroi. Under GST, the supply of goods and services is the only thing that will be taxable," said Gajanan Khanande, deputy commissioner, sales tax, in a presentation to the Clothing Manufacturers Association of India (CMAI).

The apparel manufacturers are unlikely to increase prices.

"Looking at the current competitive scenario I do not manufacturers to increase prices in the near future," Rahul Mehta, president of CMAI.

"India reported a 15% growth in garment exports at $17 billion in 2016-17 and we expect this to rise to 18% with exports hitting $20 billion from the sector as China slows down production and demand for garment manufacture shifts to Vietnam, Thailand and also to India. The US market which accounts of 30% of this demand is also doing well. The potential for exports to Europe and Japanese markets also seems bright," Mehta told DNA Money.

But the traders who have a turnover of over Rs 20 lakh to Rs 75 lakh will come under the ambit of the GST.

"It's this segment which will find it hardest to comply with the discipline that the GST demands of meticulously filing returns every month," said a textile manufacturer. He cannot under-report either because his supplies to a manufacturer will be tracked by tax authorities, said the manufacturer.

Job work for embroidery work undertaken by the manufacturer on garments will attract 18% GST -- that is for the service rendered he has to pay 18% for embroidery -- but if the same embroidery is done on cloth it will have a 5% GST.

"This will have an impact on the small manufacturers, most of whom follow the job work basis of manufacturing. CMAI has requested the government to reconsider this obvious anomaly and reduce GST on job work at garment stage to 5%," Mehta said.