The Centre’s move to unveil a blueprint for next-generation GST reforms has sparked cautious optimism among India’s retail and apparel sectors. While industry bodies have lauded the government’s intent to simplify the tax system and reduce the burden on mass-consumption goods, they have also raised red flags about potential pitfalls that could arise if the reforms are not executed thoughtfully.The government’s proposal aims to collapse the current four-tier GST system into a simplified structure with two primary slabs—5% and 18%—along with a higher rate of 40% for sin goods such as tobacco and aerated drinks. Industry associations believe this shift could unlock consumption and improve ease of doing business, but warn that risks like inverted duty structures and steep rate differentials must be avoided.Risk of 18% slab “disastrous” for apparel:
Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), welcomed the government’s intent but cautioned against unintended consequences. “The objectives of the reforms are extremely laudable. Reducing the number of slabs will ease compliance, and moving mass consumption products into the lower slab is the right approach. But the real question is execution,” he said.Currently, garments priced up to ₹1,000 attract 5% GST, while those above ₹1,000 are taxed at 12%. With the proposed elimination of the 12% slab, there are concerns that apparel priced above the threshold could move directly into the 18% bracket. “If that happens, it would be disastrous. The only way this reform will truly benefit the apparel industry is if the entire textile value chain is shifted to 5%,” Mehta stressed.He explained that such a move would not only make clothing more affordable but also resolve the sector’s biggest pain point—the inverted duty structure, where inputs like chemicals and fabrics are taxed higher than finished goods. “If raw materials remain at 18% while finished goods are at 5%, the inverted duty problem will only worsen,” he warned.Mehta also urged the government not to consider raising the ₹1,000 threshold, which could push garments above the new limit into the 18% slab. “That would encourage manufacturers to lower quality just to stay under the lower tax slab. And the wider gap—5% versus 18%—will fuel under-invoicing, unhealthy practices, and growth of the grey market,” he cautioned.RAI: Standardised rates across price points neededEchoing the call for simplification, the Retailers Association of India (RAI) has welcomed the reform blueprint but pressed for a uniform tax rate across all price points within a product category.Kumar Rajagopalan, CEO of RAI, said, “Reducing GST on everyday essentials and aspirational goods will make products more affordable, drive higher consumption, and support overall economic growth. We recommend that the tax rate on a single product should be standardised at one GST rate across all price points, regardless of the value per piece.”For retailers, managing multiple GST rates within the same product category—such as footwear or apparel—has long been a compliance headache. Rajagopalan stressed that the two-rate system should be implemented in a way that eliminates these anomalies and enhances ease of doing business.He further supported the government’s proposal to maintain higher rates on sin goods, calling it a balanced approach that aligns affordability with revenue considerations. But like CMAI, RAI flagged the danger of inverted duty structures. “We urge the government to ensure that the new structure does not lead to inverted duty structures in certain product categories. A balanced and rational GST framework will help avoid supply chain inefficiencies and working capital blockages for businesses,” Rajagopalan said.Execution will decide successBoth associations agree that GST 2.0 is a long-overdue step toward a simpler, more business-friendly tax regime.However, they caution that the success of the reforms will hinge on careful implementation.For the apparel sector, a uniform 5% rate across the textile value chain could provide the much-needed relief from pricing distortions and input tax mismatches. For retailers, consistency in tax treatment across price bands could ease compliance and improve transparency.As the government prepares to place its reform blueprint before the GST Council, industry voices are clear: simplification is welcome, but missteps in execution could derail the very objectives the reforms aim to achieve.Also Read: US President calls talks with EU leaders, Zelenskyy a good early step toward Russia-Ukraine peace
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