Proposed 35% GST on luxury RMG faces backlash from Indian industry

India has proposed to hike the goods and services tax (GST) on expensive ready-made garments (RMG) to 35 per cent. The final decision will be taken by the GST Council in its 55th meeting scheduled for December 21 in Jaisalmer, Rajasthan. However, the proposals have not been well received by the Indian textile industry and trade. A trade body urged the council to reconsider the proposal, saying it could have catastrophic consequences.

A Group of Ministers (GoM) in the Indian cabinet has reportedly suggested imposing a 35 per cent GST on RMG priced above ₹10,000 (approximately $118). The government’s GoM has proposed a GST of 18 per cent on RMG priced between ₹1,500-10,000 and 5 per cent on RMG priced below ₹1,500. It has also proposed increasing the highest slab of GST from 28 per cent to 35 per cent. This highest slab is mostly imposed on luxury goods and sin goods and services.

India is contemplating significant hikes in GST on RMG, with proposed rates increasing up to 35 per cent for items above ₹10,000.
Industry leaders argue that such steep tax increases could devastate small retailers and the millions dependent on the garment sector.
The GST Council will make a final decision on these proposals during their meeting on December 21 in Jaisalmer, Rajasthan.

The final decision will be taken in the 55th meeting of the GST Council, to be convened under the chairmanship of Finance Minister Nirmala Sitharaman. Presently, RMG priced below ₹1,000 attracts a 5 per cent GST and 12 per cent on RMG priced above it.

The proposed changes are aimed at rationalising tax revenue by targeting high-consumption, non-essential goods. While the government expects these changes to boost revenue, they may also affect consumer spending on these products.

However, the proposals have not been well received in the textile industry. Trade and industry organisations feel that the proposals could have catastrophic consequences for the textile and garment industry, particularly for small retailers, traditional brick-and-mortar businesses, and the millions of workers dependent on this trade for their livelihood.

The Punjab Cloth Merchants Association, a regional trade body, plans to approach the Finance Minister, explaining the disruptive effect of the proposed tax hike. The traditional brick-and-mortar stores, which provide employment and sustenance to millions of people, are already struggling to compete with online portals and quick-delivery platforms that operate with significantly lower overheads. Imposing such high GST rates will further exacerbate this disparity, placing the survival of these stores at risk and jeopardising the livelihoods of countless families.

For garments priced above ₹10,000, the proposed 28 per cent GST would place an unsustainable burden on retailers, whose profit margins are often lower than the proposed tax rate. This additional cost will be passed on to consumers, discouraging purchases and pushing the industry into a deeper crisis.

Moreover, such policies could unintentionally encourage practices like under-invoicing or unbilled sales, leading to revenue losses for the government. Organised retailers and larger players, who already face stiff competition, will find it difficult to compete in a market that incentivises such practices.

The textile and garment industry, largely comprised of unorganised and cottage enterprises, is vital to India’s economic and social fabric. These proposed GST hikes will destabilise the sector, leading to widespread job losses and irreparable harm to workers, entrepreneurs, and their families.

The trade body urged the GST Council to reconsider both these proposals and instead maintain the current status quo on GST rates for garments. A collaborative approach, involving dialogue with industry representatives, can help craft policies that balance the government’s revenue objectives with the sustainability of businesses and the broader economy.

Fibre2Fashion News Desk (KUL)