Leather shoes may pinch under the goods and services tax (GST) as the prices are expected to go up by an estimated 5-7%.
The proposed GST rates may push up prices of footwear across categories, while leather as a segment is most likely to be hit due to high rates.
The GST Council meeting, chaired by finance minister Arun Jaitley, on Saturday categorised footwear into two tax slabs—those priced below Rs500 will be taxed at 5%, while others will be taxed at 18%.
“We are expecting a potential price rise of 5-7% in the leather segment. There might not be much change in non-leather prices but overall, there is a huge disappointment in the industry,” said Adesh Kumar Gupta, chief executive officer at Liberty Shoes Ltd and chairman at the Council For Footwear, Leather and Accessories ( CFLA), adding that the industry was expecting a lower slab rate.
Currently, the industry pays between 9% and 20% in indirect taxes (excise, central sales tax and value-added tax), depending on the state and price range a company operates in. Gupta highlighted that excise on leather is much lower than non-leather, which is why the segment will be hit more.
“We were expecting a lower tax rate of 12%. For leather, the excise and hence, the taxes are much lower. We are still contemplating the impact of the new rates on the pricing of the product. However, GST will provide a relief from multiple taxation issues,” said Harkirat Singh, managing director of footwear and apparel maker Woodland Worldwide.
The dual tax slab rates have further irked the companies as the executives believe that footwear priced between Rs500 and Rs1,000 will be unfairly taxed. “The way government has categorised footwear below and above Rs500 is difficult to understand. The tax on footwear above Rs500 is 18%, which means that a consumer will have to pay 13% more tax on a product which is priced even slightly more than Rs500,” said Gupta of Liberty.
Agreed Deepak Chhabra, managing director at footwear maker Crocs India. “Companies playing in Rs500-1,000 category will have a lot to lose. Overall, the impact may not be much but footwear prices will not come down and the unorganized sector will widen. Also, profitability of organized players will be under strain, which will effectively work against the growth of footwear industry and entry of newer players,” Chhabra said.
The footwear market in India is growing at 12% per annum and is expected to touch $11.5 billion by 2020 from $6 billion in 2014, according to Technopak estimates.