It’s possible that GST rates on mobile phones, fertilizers, man-made fabrics and garments may be hiked to 18% in the next GST Council meeting on 14th March 2020. This hike would improve working capital position of the manufactures as it would correct the inverted duty structure, but may lead to increase in price of the finished goods.
Significant items in inverted rate structure are fertilisers, mobiles, footwears, man-made yarns and fabrics, renewable energy devices and tractors along with other smaller items. Currently, cellphones attract a GST rate of 12%, while inputs are taxed at 18%. Fertiliser was originally taxed at 12%, the Council later reduced rates to 5%. A total of ₹6,000 crore have been claimed as input tax credit refund on fertilizers from July 2017 till now along with ₹1,600 crore on man-made yarn and ₹2,300 crore on fabrics and other textile items.
With regard to footwear, the Council had already lowered GST rate to 5% on items up to ₹1,000 while the items above this value attract 18% duty. However, inputs used by the sector attract GST rate in the range of 5% to 18%. An increase in the rate of GST for some of these products should help liquidating the accumulated credits and thereby bettering the working capital costs for businesses manufacturing these goods. But there are pretty good chances that it will affect the demand for these products and will create a bit of a panic environment in the market .