The commerce ministry fears that a higher than expected goods and services tax (GST) rate on gems and jewellery and textiles products may make such exports uncompetitive and exporters may have to be compensated. These two items are among six on which GST rates could not be finalized in the 14th GST council meeting in Srinagar that was last week and a decision was delayed until the next meeting on 3 June.

A commerce ministry official stated that after GST rates are imposed, if the tax rates increases on textiles and gems and jewellery sectors, then there will be need to evaluate how much more support they may require, because the margins in the international market are fixed and higher taxes may make them uncompetitive. Also, there won’t be uniform rates for textiles and gems and jewellery items as the products vary widely. At present, taxes on textile products vary from 4 per cent to as high as 60 per cent.

Rahul Mehta, president of the Clothing Manufacturers Association of India in a note posted on its website wrote that from all the informal feedback the association has received, government is likely to impose 12 per cent GST rate on the sector and the government has not considered the industry fit to be taxed at the lowest slab of 5 per cent, which would have given a tremendous boost to the industry.

The Gem and Jewellery Export Promotion Council has demanded to fix GST rate at 1.25 per cent for the sector with continuing exemptions for diamonds. Revenue secretary Hasmukh Adhia in an interaction with a news channel pointed out that the GST rate for all branded products including textiles will be decided on 3 June. He further stated that a final decision is yet to be taken on whether branded products should be treated differently from non-branded products, he also suggested that manufacturers of branded products will benefit if a GST rate is imposed since they will be able to claim input credit.