GST impact: Footwear manufacturers rue high tax, dual rates

The proposed tax structure for footwear under the goods and services tax (GST) has left manufacturers high and dry. While the 18 per cent tax bracket for footwear priced over Rs 500 may lead to an increase in product prices, the ‘dual taxation’ structure will add to their woes as pricing will get more complex, they say. 

The GST, many fear, could hit the growth prospects of the Rs 30,000- crore domestic footwear industry, which is already under margin pressure.

Signs of worry began to appear soon after the GST Council announced on Saturday that footwear priced below Rs 500 would be taxed at 5 per cent and the rest at 18 per cent. 

The dual taxation has left loopholes as “scope for distortion” will continue to haunt organised players, says Adesh Gupta, chairman of industry body Council for Footwear, Leather and Accessories (CFLA) and chief executive officer of Liberty Shoes.

“A dual tax structure usually creates confusion and increases complexity. Also, we were expecting 12 per cent tax rate at most. While we are still assessing the actual impact, additional burden will eventually have to be passed on to the consumers,” says Harkirat Singh, managing director, Woodland Worldwide.

According to the CFLA, prices of footwear are set to rise up to seven per cent from July. “The government is least bothered about growth of the industry. The 13 per cent gap between the two tax slabs will have to be passed on to the consumers as companies are already under margin pressure,” says Gupta.

Major footwear manufacturers had been lobbying the government for the past one year for a uniform tax structure for all categories of footwear. The CFLA had made several representations to Finance Minister Arun Jaitley, Commerce Minister Nirmala Sitharaman and other government representatives. Two of their key demands were to keep footwear under 5 per cent tax bracket and discourage imports from China, which according to the council holds over 20 per cent share of the market by value. 

Jharkhand Chief Minister Raghubar Das had written to the finance minister requesting similar tax rates for footwear and apparel, citing the importance of the sector in India’s manufacturing capabilities. In the letter dated March 9, Das wrote, “It has been brought to light (by CFLA) that India accounts for 13 per cent of global footwear production, which is next to China. But China has made a vast impact on Indian market of footwear, which is adversely affecting the local industry. I request you to kindly look into the matter and take appropriate steps to keep the rate of GST at 5 per cent.”

According to sources, constant representations by the industry led the council to defer announcement of rates for footwear, along with certain other items like bidi, precious metals and textile.

“GST rates have not brought any good news for the companies. Organised players will not grow any faster and their profitability will be hit further. However, small players may get some relief as they will not have to pay taxes on a par with bigger firms,” says Deepak Chhabra, managing director, Crocs India.

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