There are also talks of branded garments being put under the luxury tax slab, which could be higher than 18 per cent.
Branded apparels may get costlier as a result of the implementation of the goods and services tax (GST), expected by April 2017.
According to industry and experts, tax incidence on branded apparels and other finished textile products could rise at least three-four per cent, assuming textiles come under the merit list of GST.
“We have found that the tax neutral rate in textiles comes to around eight-nine per cent. Once GST comes into play, we are expecting a lower rate of 12 per cent, out of the two slabs of 12 and 18 per cent. But even at a lower rate, the sector will end up paying higher duties, thereby increasing prices. Hence, from the textiles perspective, it will be inflationary,” said Prashant Agarwal of Wazir Advisors, a retail consulting firm.
However, according to Jayesh Desai, director and CFO, Arvind Ltd., the company's internal calculations suggest that at a merit rate of 12 per cent for fabric and 16-17 per cent for garments tend to be revenue neutral.
"In such a case, it may not have any inflationary pressure on the garments," said Shah, adding that initial indications of the government seem to hint that apparels could be placed in the merit tax rate.
According to Rahul Mehta, president of Clothing Manufacturers' Association of India (CMAI), there are also talks of branded garments being put under the luxury tax slab, which could be higher than 18 per cent.
“We have been making several representations that the current revenue neutral rate of eight-nine per cent, anything more than that will kill the industry. It is being said that branded garments will be taxed as luxury. If that is so, then every labeled garment is branded, which means right from garments worth Rs 500 to Rs 3000 and above are branded. Smaller players as well as middle class consumers will be impacted the most by GST," said Mehta.
However, Agarwal says while the immediate incidence of three-four per cent, assuming a 12 per cent rate and an almost 10 per cent incidence in case of 18 per cent will result in inflationary trends, in the long run consumers would be able to accommodate the same.
“We expect consumers to accommodate this rise in the long run. As a value chain, too many inter-state transactions happen in textiles. Hence, GST is likely to bring in ease of doing business across the whole value chain," Agarwal added.