The Goods and Services Tax (GST) Council has unanimously decided to defer a hike in GST on textiles from 5 percent to 12 percent, finance minister Nirmala Sitharaman announced on December 31.

The GST rate hike on textiles from 5 percent to 12 percent was to come into effect from January 1. The matter will be discussed again in the next council meet.

On December 30, several states flagged higher tax rate on textile products from January 1 and demanded that the rate hike be put on hold. However, at the post-meeting press conference, Sitharaman said the decision was taken after Gujarat chief minister Bhupendrabhai Patel wrote to her ministry.

“Textiles items had been taken up at the last meeting due to many textile items having a large amount of inverted tax structure. Even today there is a consensus that there is an inversion in textiles. There is already a committee to look at the rate rationalisation. Textiles would again be put to the committee to review it,” Sitharaman said.

She said a large segment of the industry felt it would have a negative impact. “Textile is a complex subject with many components, sub-industries and segments. At various stages, they are taxed for the yarn, fabric and the garment, and so on. This complicated topic requires more objectivity, through which it will be worked out,” Sitharaman said.

While a similar decision for mobile phones had been taken in 2019, a decision on textiles had not been taken then due to opposition from states, the finance minister said.

In the pre-budget meeting chaired by Sitharaman, states like Gujarat, West Bengal, Delhi, Rajasthan and Tamil Nadu said they were not in favour of a hike in GST rate on textiles to 12 per cent from 5 percent currently, with effect from January 1, 2022.

The Confederation of All India Traders (CAIT) welcomed the decision and said that it would bring relief to lakhs of textile traders of the country who were under immense stress for more than a month.

Interestingly, Sitharaman clarified that no similar decision has been taken for footwear, which had the same issue. The GST rate was raised to 12 per cent, effective from January 1, 2022, from 5 per cent for sale value up to Rs 1,000 per pair in the case of footwear.

Medicine prices

It was also not clear if the council had extended the GST rate cut on COVID essential items, particularly medicines.

At its last meeting, the GST Council had extended the GST rate cuts on COVID essential items till December 31. However, the extension had only included medicines and not other medical equipment. Tax rates on medicines used in cancer treatment were also cut from 12 percent to 5 percent.

At its June 12 meeting, the council had slashed the GST rates on a number of items crucial in the fight against the pandemic. These include essential medicines, oxygen, oxygen generation equipment and related devices, and diagnostic and testing machine kits.

The items on which rate cuts were made included Remdesivir, Tocilizumab, medical-grade oxygen, oxygen generators, ventilators, masks, COVID testing kits, oximeters, hand sanitizers, cremation furnaces, ambulances and temperature checking devices, among others.

This was only the second in-person meeting of the all-powerful federal body in nearly two years. The last in-person GST Council meeting was held in September 2021 in Lucknow.