Handicraft industry sees 25% dip after GST introduction

By

Isabelle Crossley

Published
Oct 17, 2017

Following the implementation of the Goods and Services Tax (GST) in July, India’s handicraft industry has taken a big hit as increased tax has led to higher prices.

G C Kishore Kumar, a General Manager (finance) of Karnataka State Handicraft Development Corporation Limited (KSHDCL), said about the GST’s effects: “Sales have seen a decline after GST was implemented. Higher tax rates which have increased costs are to blame.” Last year’s demonetisation had already caused trouble for the sector and so the GST has only made matters worse.

Most handicraft products were previously taxed at 5.5% under the Value Added Tax (VAT) model but the tax rate has risen for many sub-categories under the GST. Tax on sandalwood items has risen from 5.5% to 12% and tax on rosewood items has risen from 14% to 28%. This large tax increase has led to increased prices and so less demand which has caused a 25% dip in sales.

One KSHDCL official said about the situation: “Small artisans are the ones bearing the brunt. Big dealers prefer not to procure products from small artisans because of a policy issue in the GST regime that makes purchase from small manufacturers a profit-losing exercise.” Although technically small artisans who have a less than 20 lakh rupee turnover (approximately 30,000 US dollars) should be exempt from paying GST if registered, the majority of such businesses are not registered and so buyers are not eligible for input tax credits and have to pay the GST from their own pocket, making it less desirable to buy from small artisans.

This situation appears to be at odds with the government’s “Make in India” campaign which is aiming to promote Indian handicrafts. One main problem is that most small artisans are not formally registered and the question is why and how to combat this.