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Indian Footwear Makers Protest Crushing New Tax Hike

Indian footwear manufacturers are up in arms protesting a Jan. 1 tax hike that threatens their prospects amid new pandemic uncertainty.

A group of shoe makers in the world’s second-biggest footwear exporter after China took action this week opposing a significant upward revision to the goods and services tax at the start of the new year. Footwear manufacturers and traders in Agra shutting shops city-wide Wednesday, describing the tax hike from 5 percent to 12 percent for shoes under 1,000 rupees ($13.43) would deal a death blow to their businesses.

Just 125 miles southeast of the capital city of Delhi, Agra manufactures 65 percent of India’s total footwear output, and approximately 30 percent of the country’s footwear exports. The Council for Leather Exports estimates that Agra produces 200,000 pairs of footwear daily. India, the second-biggest consumer market for footwear after China, employs 2.5 million-plus people in the business of making shoes.

According to industry estimates, India’s footwear market is expected to be $15.5 billion by 2022, and to grow at an approximately 15 percent a year to 2030.

Manufacturers say the industry is already reeling from the double whammy of higher raw materials costs and Covid-related challenges.

Rajiv Wasan, general secretary of the Agra Footwear Manufacturers & Exporters Chamber (AFMEC) told Sourcing Journal that the tax hike would hobble the industry, threatening a ‘major chunk’ of the business. “Manufacturers will be pressured for underbilling, even though there will be an input tax credit,” he said. In effect, the government stands to lose revenue as business will be more likely to revert to certain ways of recorded billing, he pointed out.

“The shoes in this price range have naturally become costlier,” Wasan said. “The consumer will pay 7 percent extra from what they were paying earlier. The trader in between will have a lot more difficulty with this.”

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Footwear manufacturers compare their plight with their peers in apparel, which got a last-minute tax reprieve after petitions and protests forced the government to reverse course on lifting the tax rate.

What’s more, Wasan said producers are bracing for another possible downturn as Omicron sweeps over India, which reported about 117,000 new cases in the past 24 hours and where cities like New Delhi mandated night curfews.

“The cases are rising exponentially now,” Wasan added. “We are keeping our fingers crossed that manufacturing for the summer will not be affected.”

“Given that we are already dealing with the higher costs of raw materials and uncertainty because of Covid-19, we should not have to deal with more complications at this time,” said Praveen Joshi, a manufacturer in the New Delhi area.

Many in the industry still hope that ongoing discussions might convince government authorities to ditch the burdensome tax increase.