NewsCorporate ActionsGovernment Mulls Two-Rate GST Structure for Apparel and Footwear to Boost ConsumptionGovernment Mulls Two-Rate GST Structure for Apparel and Footwear to Boost Consumption
The Indian government is proposing a new two-rate GST structure for apparel and footwear. For apparel above ₹1,000 and footwear below ₹1,000, GST may be reduced from 12% to 5%. Footwear above ₹1,000 would remain at 18% GST. Goldman Sachs analysis suggests varied impacts on retailers: Trent and Page Industries could see significant benefits, Bata may benefit moderately, while Metro Brands might see limited impact. The changes aim to improve affordability and boost consumption in the sector.
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The Indian government is considering a significant change in the Goods and Services Tax (GST) structure for the apparel and footwear sector, aiming to improve affordability and stimulate consumption. The proposed two-rate structure could have varying impacts on different retail companies, according to a recent analysis by Goldman Sachs.
Proposed GST Changes
Under the new proposal, the government is contemplating the following adjustments:
- Apparel priced above ₹1,000: GST rate reduction from 12% to 5%
- Footwear priced below ₹1,000: GST rate reduction from 12% to 5%
- Footwear priced above ₹1,000: GST rate to remain unchanged at 18%
Potential Impact on Retail Companies
The Goldman Sachs analysis suggests that the proposed changes could affect various retail companies differently:
| Company | Segment Affected | Potential Impact |
|---|---|---|
| Trent | One-third of Westside format sales (above ₹1,000) | Significant benefit |
| Page Industries | Outerwear portfolio (40% of sales, above ₹1,000) | Positive impact |
| Bata | 40% of sales (footwear below ₹1,000) | Beneficial |
| Metro Brands | Over 90% of sales (footwear above ₹1,000) | Limited benefit |
Trent Limited
Trent, which operates the Westside format stores, could see a substantial benefit as one-third of its sales come from apparel priced above ₹1,000, which would be subject to the reduced 5% GST rate.
Page Industries
The company's outerwear portfolio, accounting for 40% of its sales and typically priced above ₹1,000, stands to gain from the proposed rate reduction.
Bata India
Bata could benefit from the rate cut on footwear priced below ₹1,000, which represents 40% of its sales.
Metro Brands
With over 90% of its sales coming from footwear priced above ₹1,000, Metro Brands would see limited benefit as the 18% GST rate for this category remains unchanged under the proposal.
Implications for the Sector
The proposed GST restructuring is expected to have far-reaching effects on the apparel and footwear industry:
Improved Affordability: The reduction in GST rates could lead to lower prices for consumers, potentially stimulating demand.
Increased Consumption: By making certain categories of apparel and footwear more affordable, the government aims to boost overall consumption in the sector.
Varied Company Performance: As highlighted by the Goldman Sachs analysis, different companies within the sector may experience varying degrees of benefit based on their product mix and pricing strategies.
Market Dynamics: The changes could potentially alter market dynamics, with companies adjusting their pricing and product strategies to maximize the benefits of the new tax structure.
While the proposal is still under consideration, it represents a significant potential shift in the taxation landscape for the apparel and footwear sector. Industry stakeholders will be closely monitoring developments as the government finalizes its decision on this two-rate GST structure.
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