Excise duty on branded apparels, major concern for industry

Wednesday, 02 March 2011
Excise duty on branded apparels, major concern for industryThe Union Budget has left players in the branded apparel sector in India an unhappy lot. Now, they have to cough up a mandatory excise duty of 10 per cent. Till now they were under the optional excise duty regime but now they have a mandatory excise duty with a unified rate of 10 per cent. Reactions are pouring in as industry bodies and other stake holders feel it should be rolled back.

Excise duty on branded apparels, major concern for industry The Confederation of Indian Textile Industry (CITI) and the Apparel Export Promotion Council (AEPC) have urged the finance minister to roll back the proposal. As Rahul Mehta, President, Clothing Manufacturers Association of India (CMAI) says, “There is only one year for the GST regime to start, so there is no need to create this uncertainty. After all everyone is going to move to GST in the end. Moreover, 130 other products which were not attracting excise duties, now have to pay 1 per cent duty while for garments its 10 per cent. There is no reason for an essential item like clothing to be charged at a higher rate. Also, the industry is already highly fragmented and by distinguishing between small scale units and others, we are encouraging players who were moving to a more organized business to go back to small scale manufacturing. All the efforts we have undertaken as an industry association to make manufacturing more organized have gone down the drain.” Agrees Premal Udani, Chairman, (AEPC) as he feels there’s a negative sentiment with this excise duty. “We have no problem paying the tax but excise on apparels is not easy to collect because of the highly decentralized production. It’s a negative step and we have asked the FM that till the time it’s clearly understood, it should be held in abeyance. Also, the domestic industry is already reeling under price pressures and garments are expensive because of the raw material hike, this will add to the clothing inflation.” In a statement, CITI Chairman Shishir Jaipuria too has said the proposal would not only have serious adverse impact on “these high labor intensive segments'' but also have significant operational problems at the level of implementation. He pointed out that since most inputs for the segment comes through the optional excise duty regime there would be very little duty credit to offset.

Meanwhile apparel retailers and brands like Alok H&A, Woodland, Mandhana Industries, Cantabil etc, are not too sure how it will play out on the consumer. As Ashutosh Chakradeo, Head Buying Merchandising, Hypercity says “We are not sure if the duty is also applicable on private brands or only on national brands. But in general this is not an encouraging sign as prices have already gone up by 20 to 25 per cent due to the hike in cotton prices. And on top of that an excise duty will have an impact on the customer by 5 to 7 per cent. It will have to be passed on and that is not a good sign.”

The industry is disappointed with the budget since there was no declaration of a roadmap on FDI in retail. “There was no announcement on the withdrawal of service tax. And now there is a 10 per cent excise duty on branded apparels. Cotton prices have shot up by 100 per cent and there’s no other way but to pass on the increase in yarn and fabrics to apparels. While on one hand we have to fend off the cost increase on the other there is the excise duty, which we can’t absorb. So there is a big challenge. We as an industry would like this to be delayed by a year or bring it along with GST so we can set it off. Or cancel it completely,” says Govind Shrikhande, Customer Care Associate and MD, Shoppers Stop.

Most brands say there is no option but to increase prices. Because when it comes to excise duty, when you clear the manufacturing stage, you have to pay. So it’s a cost. That cost will directly impact retail prices which will be higher by 5 to 10 per cent. “My MRP will go up by 6 per cent. And it will be passed on to the consumer. I have already absorbed the huge price increase of yarn. So I don’t have a choice now,” says Vijaylaxmi Poddar, Director, Siyaram Silk Mills. She feels the price wars between branded and unbranded will get sharper. But the price gap between Indian and imported brands will get narrower.

The bottomline therefore is: The consumer will certainly be affected as retailers say they can’t absorb excise duty.

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