GST rates: Footwear to cost more as firms look to increase prices by 5-7%
New Delhi: Footwear companies across the country are looking to increase prices of their products—particularly in the leather segment—by 5-7%, in a bid to compensate for a higher goods and service tax (GST) rate.
The GST Council had categorised footwear into two tax slabs. Those priced below Rs500 will be taxed at 5%, and others will be taxed at 18%.
“While we welcome the path-breaking tax reform of GST (one nation, one tax, one sector), we will be required to increase the prices of our products by at least 5-7% with effect from September (after the existing stock is cleared) due to the 18% rate. Leather footwear as a segment will be hit more because the excise duty was much lower than on non-leather,” said Adesh Gupta, chief executive officer at Liberty Shoes Ltd and chairman at the Council for Footwear, Leather and Accessories (CFLA).
The industry paid between 9% and 20% in indirect taxes (excise, central sales tax and value-added tax), depending on the state and the price range a company operates in.
Footwear industry executives also said the dual tax slab rates will have a detrimental impact on the overall sector as footwear priced between Rs500 and Rs1,000 will be taxed more. CFLA has made multiple representations to the government to reconsider the 5% and 18% rates and bring them on par with those applicable to the apparel industry, which is taxed at 5% and 12%.
“There is no justification for not taxing footwear at the same rate as apparel. The GST on the footwear manufacturing components is very high, much higher than the GST on final products. The products priced between Rs500-1,000 will definitely feel the heat,” said Puran Dawar, president, Agra Footwear Manufacturers and Exporters Chambers (AFMEC), adding that leather products will see a hike of a minimum 5-7%.
“We will have to increase our working capital investments as well. Overall, GST is a welcome step but the government needs to reconsider the rates. The industry is already under a lot of pressure,” Dawar added.
Harkirat Singh, managing director of footwear and apparel maker Woodland Worldwide does not want to increase prices of shoes in the middle of the year. “We are still evaluating. It’s early to know the actual impact of GST on the costs,” he said.
Rajeev Bhatia, vice-president (marketing) at Relaxo Footwears Ltd, agrees. “It’s still premature for us to take a call on prices. Even if the prices go up, these will be easily offset by the advantages of GST,” he said.
The footwear market in India is growing at 12% per annum and is expected to touch $11.5 billion by 2020 from $6 billion in 2014, according to estimates from the retail consultancy Technopak Advisors.