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Prices of apparel, footwear to get dearer as government raises GST from 5% to 12%

News: The Central Board of Indirect Taxes and Customs (CBIC) has notified an increase in GST rates of various kinds of textiles, apparel and footwear to 12% from 5% earlier, which will be effective from January 1, 2022. However, GST rates for certain synthetic fibres and yarn have been lowered from 18% to 12% to remove distortions due to the inverted duty structure.

Views: The correction of the inverted duty structure, especially for the synthetic industry, would result in release of working capital business (erstwhile blocked working capital for businesses due to input tax credit accumulation). However, the move would lead to higher prices for the end consumer at a time when high raw material costs and elevated freight costs have already impacted prices. In our coverage universe , it can have a negative impact on the volume growth for apparel companies, which sell apparel below Rs.1000 per piece like Vmart , Trent ( through Zudio stores), Page Industries. Among footwear companies it can subdue the volume growth for Relaxo Footwear ( average selling price ~Rs.150)

Impact: Negative