Friday, 9 June 2017

GST: While apparel is at 12% why footwear is at 18% asks Adesh Gupta, Liberty Shoes

The Modi government has decided that this will be the top priority sector because we are the second largest manufacturing in the world and our consumption within India is almost 95% of the shoes produced. The idea was that for Make in India, the overall objective to grow this trade which are reeling under high dose of taxation in the past and discrimination between materials and prices and tax slabs. The good part what the government has done is that they have created two structures where there is no resumption of any kind to any Rs 100 or hawai chappal and this and that so they have put that into 5% tax bracket below 500 and the second category or the second slab they have created is 18% category.

The industry is totally disappointed while apparel is having the similar tax structure of 12%. There is no logic that when a shirt of Rs 1000 is sold and whereas shoes of 500 and if it is above 500, there is a huge arbitrage which we can lead to evasion also because there is a 13% differential from 5 to 18. So if the shoe is 600 or 700, we suspect there is a serious trouble and issues for the sector or for the government. Whereas while the concept of GST was to base on the revenue neutral rate that was closest to that the government is not looking at making additional revenue from any particular sector but we are concerned when we are talking about 18%, the premise which the government has mentioned and even the finance minister is that they have calculated the weighted average rate of 23% and 30% for the two categories between 500 to 1000 and 1000 above.

We dispute that particular the concept or the calculation because the government has forgotten the fact that in those categories the excise duty was 6% whereas now if that is going to be 18%, there is a clear advantage of 5% to the government in terms of revenue they will generate. The total excise revenue collected by the centre in the last one year was nearly 160 crores and with this new tax structure, they will be making almost about 1000 crores extra so either…

Let us just understand the breakup because for all the portfolio below Rs 500 at least there is an advantage. Tell us at Liberty what percentage of your portfolio is footwear below Rs 500 a piece?

As of now, I am representing the Council for Footwear. We are dwelling on the whole concept of the total architecture of the GST below 500 and above 500. We are working out our strategy for what are the benefits, where are the losses or where are the concern but right now we are very concerned about the industry because the industry particularly between 500 to 1000 and leather footwear which were taxed at 4.2% of the excise duty because there was 30% abatement, they are going to pay 18% and this is where the concern is coming from the sector and industry.

Lot of leather manufacturers who are purely leather manufacturers they will be under serious strain of at least 5% to 10% price increase and this is where the industry is really feeling disappointed that while apparel is 12% why footwear is 18% because they are coming from the same globally the same value chain and also in the same similar brackets.

You can give me a number in billions of dollars. What is the market size of footwear which is priced at 500 plus? 

The total market size is 30,000 crores. Out of which below 500 I would count this would be somewhere around 10,000 crores so which is 25% or 30% of the market size. The remaining 60% to 75% of the market is between 500 and above space but India is on the threshold of I would say the average prices say item of mass consumption. The threshold price in India is not more than Rs 1000.

What we sell in India is billions of pairs which is very important and their threshold limit is thousand so this is where the concern is coming from the industry that leather they have, even the raw material they have taxed at 12% which is the raw material which was exempted earlier. There is a huge expenditure of taxes again on the footwear which was not the objective of the government but somehow they have calculated wrongly and we would like to challenge the concept how they have come out at the weighted averages tax rate prevailing in the country.
http://economictimes.indiatimes.com/markets/expert-view/gst-while-apparel-is-at-12-why-footwear-is-at-18-asks-adesh-gupta-liberty-shoes/articleshow/58996848.cms

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