By Adv. Sabrina Bath
OVERVIEW OF INDIAN TAXATION SYSTEM
India has an effective tax system with a well-defined jurisdiction between the Central and State Governments, along with the municipal authorities. The ability to levy a tax is drawn from the Indian Constitution, which vests the Center and the States with the jurisdiction to charge various taxes. A significant constraint on this jurisdiction is Article 265 of the Constitution, which specifies that “no tax must be imposed or collected except by legislation.” As a result, each tax imposed or collected must be accompanied by a corresponding statute enacted by either the Parliament or the State Legislature. However, tax evasion is a significant issue in India, sparking a variety of negative consequences for the nation.
The central government levies a variety of direct and indirect taxes on individuals and goods. Direct taxes include corporation tax, personal income tax and wealth tax, whereas indirect taxes cover service tax, customs duty, sales tax and excise duty. State governments levy State excise, stamp duty, profession tax, value-added tax (VAT) and land revenue. Local authorities are able to charge a tax on octroi, property tax and for services such as drainage, water supply, etc. The Indian taxation system has seen dramatic modifications over the previous decade. Tax rates have been debated and tax laws analyzed in order to improve the ease of payment and compliance. In India, the process of rationalizing the tax regime is ongoing.
The One Hundred and First Amendment to the Indian Constitution introduced the Goods and Services Tax in India. The Parliament passed the Goods and Services Tax Act on 29th March 2017 and it took effect on 1st July 2017. Goods and Services Tax is an indirect tax that has mostly supplanted many other indirect taxes in India, including service tax, excise duty and VAT, levied previously by the federal and state governments. In other terms, GST is a tax on the supply of goods and services. In India, GST is a comprehensive, multi-stage, destination-based tax applied on all value additions. It is a unified domestic indirect taxation law that applies to the entire nation.
TAXATION HIKE ON PRODUCTS
The government increased the GST on completed items such as clothing, footwear and textiles from 5% to 12%. The new tax bracket will take full effect on January 1, 2022. The Central Board of Indirect Taxes and Customs (CBIC) announced the hike on November 18. The price of finished goods such as clothing, footwear and textiles will now increase as a result of the latest government tax slab reforms. The goods will now be subject to a 7% GST. Textile items costing less than Rs 1,000 per piece, such as pile fabrics, woven fabrics, blankets, synthetic yarn, tents, tapestries and carpets, as well as footwear of any value, would have their GST rates increased from 5% to 12%. The increase was recommended by the GST Council. Furthermore, the GST rate on certain synthetic yarn and fibres has been reduced from 18% to 12% in an effort to achieve uniformity all throughout the textiles sector.
The government intends to remove anomalies caused by an inverted duty structure in which the tax rate on inputs is greater than the final tax on the finished product. Earlier in September, the GST Council committed to rectifying the duty structure in the footwear and textile sectors, so resolving the taxing system’s problems.
OPPOSITION TO TAXATION HIKE ON PRODUCTS
The Clothing Manufacturers Association of India (CMAI) expressed dissatisfaction with the government's decision to hike the GST. According to the manufacturers organisation, the increase will have a significant impact on the industry. They said that the textile industry had already been experiencing inflation owing to increasing raw material costs. Prices for things such as yarn, packing material, and freight have climbed considerably in recent times. CMAI, along with organizations and trade associations from throughout India, has been a vocal advocate for the government and GST Council not to make this amendment, and it is very regrettable that the Council has opted not to listen. The Federation of Hosiery Manufacturers Association of India (FOHMA) has petitioned for its postponement, claiming that it will adversely affect ordinary citizens and MSMEs.
The vast majority of the population opposes the government’s proposal since it will considerably raise prices of garments that currently costs less than Rs 1,000. Among the most frequently mentioned topics in public discussions is the high rate of inflation, the high cost of vegetables and other FMCG essentials. If GST rates on garments and footwear are hiked, household budgets will be severely squeezed.
Presently, manufactured fibre (MMF) is taxed at 18%, MMF yarn at 12% and textiles at 5%. The Council voted to remedy the inverted duty structure in the textile and footwear sectors during its earlier session on September 17.
It has been sought that the Centre reverses the proposed textile tax increase, claiming that it would result in the closure of around 1 lakh textile facilities and the loss of 15 lakh jobs. Notwithstanding the nation's staggering inflation, the Central Government has suggested a massive tax increase on textiles under the new GST regime. The Centre has suggested increasing GST rates to 12% from the current 5%, completely disregarding the plight of the common man.
The GST Council resolved to defer the decision to increase the tax rate on textiles to 12%, following opposition from several states, including Tamil Nadu and West Bengal. Delhi, Gujarat, Rajasthan, Tamil Nadu and West Bengal have expressed opposition to a proposed increase in the Goods and Services Tax rate on textiles to 12% from 5% on January 1, 2022. The GST Council's 46th meeting, headed by Union Finance Minister Nirmala Sitharaman and attended by state equivalents, decided to continue deliberating on the subject at its next meeting.
Whilst suggested pullback of the GST rate increase on several textile products will support the sector, particularly SMEs and MSMEs, a resolution to the textile sector's inverted duty structure would be imperative. The inverted duty structure issue come into play when the completed product is taxed at a lower rate than the input raw materials. This, therefore, typically results in an increase in the prices of final products. In comparison to textiles, there has been less resistance to the rate increase in footwear. Numerous sectors, including the textile industry, will closely monitor the rate rationalisation committee’s suggested proposals over the next two months.
 INDIA CONST. art 265.  Id.  The Constitution (One Hundred and First Amendment) Act, 2016.  Shariq Khan, ‘Completely unjustifiable’ GST rate hike on apparel, textiles and footwear show the Govt has no easy choice, THE ECONOMIC TIMES (Jan 9, 2022, 6:53PM), https://economictimes.indiatimes.com/small-biz/gst/completely-unjustifiable-gst-rate-hike-in-apparel-textiles-and-footwear-show-the-govt-has-no-easy-choices/articleshow/87923255.cms?from=mdr.  PTI, GST tax hike on textiles put on hold: FM, THE PRINT, (Jan 9, 2022, 6:53PM), https://theprint.in/economy/gst-tax-hike-on-textiles-put-on-hold-fm/792332/.  Gulveen Aulakh, Textile GST hike likely to be rolled back, MINT, (Jan 9, 2022, 6:53PM), https://www.livemint.com/politics/policy/gst-council-set-to-roll-back-textile-levy-hike-11640891075088.html. Author: Adv. Sabrina Bath
Collage: Symbiosis Law School, Pune.