VAT: Leather footwear to cost more

The leather goods and footwear industry claimed to have suffered one of the sharpest increase of nearly 10 per cent in the prices of its products with the value-added tax regime, which came into effect in 19 states across the country.

"Leather footwear is taxed at the rate of 12.5 per cent whereas a comparable product category like garments is taxed at 4 per cent. This discrimination would only benefit the unorganised sector," said Kuruvilla Kuriakose, director (finance), Mirza Tanners.

Crisis over VAT

The leather industry claimed to be further hard done by the fact that textiles are excise free, whereas leather goods attract a 16 per cent excise duty.

According to Kuriakose, a 10 per cent increase in the prices of branded footwear would force consumers to go in for cheaper products manufactured by the unorganised sector.

"Several players would tamper with the pricing and sell through smaller retailers who don't come under the VAT system. In such cases, both the consumer and the government stand to lose. Moreover, the first point sales tax on footwear is eight per cent at present and with the implementation of VAT the retail price would go up by 10 per cent," he added.

The Rs 3,000-crore (Rs 30 billion) leather and footwear industry estimates with the implementation of VAT, the loss in margins would be to the tune of Rs 250-300 crore (Rs 2.5-3 billion) annually. The Tata group, Liberty Footwear and Mirza tanners are among the largest players in the industry.

"Also since Uttar Pradesh has not implemented VAT, players like us who manufacture in the state would not get any input credit," he said.

The leather industry has sent a representation to the finance minister to bring the tax rates at par with the textile industry.

"There should be a parity in terms of taxation as the government classifies both texitles and footwear in the same group," he added.