Leather Goods Exporters Disappointed, With GST Rate Hike

Leather products exporters have expressed resentment over the hike in the Goods and Services Tax (GST) on finished leather from 5 per cent to 12 per cent, asserting that the step will demand higher working capital at a time when the industry is reviving from Covid headwinds and high inflation.

While the government is trying to boost export and the USA, a key market for the exporters, is facing recession threats, a tax rate hike of seven per cent is counter-productive, they said. "It's not a good decision when the country aims to triple exports. Our costs have already gone up by 25-30 per cent due to inflation in input materials. When we were just reviving from our losses during the Covid period, this is another obstacle," Indian Leather Products Association (ILPA) president Ajay Tarway told PTI. He said that the step will increase exporters' capital requirement sharply.

Echoing a similar view, Rajda Industries and Exporters managing director Gautam Rajda said, "The GST rate hike will hit us hard when costs are up significantly and above all, the threat of recession in the US is looming large." Europe and the USA account for nearly 80 per cent of total exports of leather goods from India. During 2021-22, the country exported total leather and leather products worth USD 4.87 billion. Exporters get back duties and levies, but the government takes 4-6 months to refund the taxes, blocking capital considerably, said Rajda whose company is a leading leather goods exporter from Kolkata.

"We are unable to pass the entire cost inflation as buyers are unwilling to accept the rise due to their inflation problems which are putting our margins under tremendous pressure," Rajda said. Asked whether the Russia-Ukraine conflict has any adverse effect on leather goods exports, the ILPA official said that withdrawal of US and European fashion brands and stores from Russia will have an impact. Meanwhile, the tannery sector welcomed the GST rate hike saying that they will be able to set off their Input Tax Credit due to the rationalisation in the inverted tax structure.

Calcutta Leather Complex Tanners Association president Ramesh Juneja said that earlier finished leather had a GST of 5 per cent GST while taxes on inputs were between 12 and 18 per cent. "This was blocking our capital. Now, with 12 per cent GST on finished leather, we get some respite in our tax outgo," he said. However, if exports suffer, the demand for hides and finished leather will go down which in turn will hit the tanners, Tarway said. West Bengal is a leading state in the country in exporting finished leather goods. It accounts for almost 25 per cent of India's leather exports.

(PTI)