Through various interactions with the industry captains in the past , Adesh Gupta, Chairman – CFLA, concluded that rationalization of taxation on this sector is an absolute must for growth. He had been working aggressively with the DIPP, Finance Ministry to reduce the excise duty on footwear in all categories from the current level of 12.5 % to 6% or lower.
In the budget of 2014-15, the Government had reduced excise duty on leather footwear from 12.5% to 6%, giving benefit specific to the leather sector. Globally and as well as in India, non-leather category constitutes 80-90% of the footwear industry, whereas 10-20% is just of leather footwear. So the benefit is limited to a small section of the industry.
Moreover, this treatment is viewed to be working against the interest of the industry. The industry was unanimously of the view that if the footwear and accessories sector has to grow, then reduction of excise duty from 12.5% to 6% should be extended to all categories irrespective of material and MRP to bring at par with the apparel industry.
The second demand was to correct the abatement percentage which in union budget of 2014-15 was reduced from 35% to 25% due to which the non-leather segment of footwear sector suffered badly. Instead of the industry demand for reduction of excise, the manufacturers are now paying pay further 20% additional Tax (Excise) on non-leather which has further dampened ‘Make In India’ plans for non-leather manufacturing as China exports some 200 million shoes every year to India.
The chairman had taken up the abatement issue and requested for raising the abatement limit to 50% from the present level of 30% in the pre-budget memorandum that was submitted earlier in the year. At present VAT, excise duty, CST, local taxes, entry tax paid together constitute roughly 25% of the MRP, therefore, according to the chairman, the current abatement 25-30% is not enough and justified as it is hitting the industry below its belt. This means the industry is paying excise duty practically on the retail price which is against the spirit of MRP taxation and rules. CFLA is demanding 50% abatement since in apparels it is already 40%, whereas the VAT on apparels / garments is zero. So 50% abatement on footwear is really justified.
“We want an investment-led economy and are confident that there would be reforms. Reducing excise across the categories, i.e. leather, textile or synthetic or non-leather footwear and introduction of 50% abatement allowance are some of our suggestions,” explains Gupta. “Significantly, the industry lobby did not recommend any fresh stimulus package for the industry. Instead, it suggested the continuation of fiscal incentives for at least a few years.”
CFLA also demanded speedy implementation of the proposed goods and services tax and rationalization of other indirect taxes. “The markets globally are experiencing a sluggish movement and the demand sentiment will only pick up after the government upholds these announcements. In the meantime, the proposals to cut excise duty on leather footwear are a welcome step,” Gupta added. “Certainly, many brands and manufacturers will definitely pass on the benefits of these excise reductions to the consumers. We hope this revives sentiment and encourage people to buy more shoes.”