169On September 22, India implemented the largest Goods and Services Tax (GST) reform in eight years, with the apparel industry becoming a key area of focus.
According to the new regulations, for clothing and accessories with a single item price exceeding 2,500 rupees (about RMB 202), the tax rate will be raised from 12% to 18%. For low-priced clothing (below 2,500 rupees), the tax rate will be reduced from 12% to 5%. Footwear products will follow a similar policy: the tax rate for low-priced shoes will drop to 5%, while high-priced shoes will maintain an 18% tax rate.
This policy not only redefines the competitive landscape of India's apparel market, but also reflects the strategic adjustment of tax policies by various countries under the global trade environment.
Image source:india-briefing
Behind the Tax Reform: Protecting Domestic Industry or Stimulating Consumption?
The Indian government's tax reform may seem contradictory, but it has its own internal logic.
On one hand, by lowering the tax rate on low-priced clothing, it directly benefits the low-income groups who make up the majority of the population, stimulating mass consumption. On the other hand, increasing taxes on high-priced clothing raises the operating costs for high-end brands.
The Clothing Manufacturers Association of India (CMAI) and the Retailers Association of India (RAI) point out that clothing priced above 2,500 rupees is not purchased only by the wealthy.
The middle class and ordinary consumers often need to choose such high-priced products when purchasing woolen clothing, wedding and festive attire, traditional Indian garments, hand-woven and embroidered items. The increase in tax rates will be directly passed on to consumers, increasing their financial burden.
Image source:Fashion Network
Unexpected Gains for Fast Fashion Brands
Under the new tax system, sellers of low-priced clothing have become the biggest winners.
Take the fast fashion platform Shein, which re-entered India during this year's Spring Festival holiday, as an example. Most of its products are priced below 2,500 rupees and can now enjoy the lowest tax rate of 5%, further highlighting its cost advantage.
This is not a coincidence. The Indian consumer market is still dominated by price-sensitive consumers, and low-priced products hold an absolute dominant position. After the tax reform, the competitiveness of international fast fashion brands in the Indian market will be further enhanced, which may accelerate market reshuffling.
Image source: Internet
In contrast, high-end clothing brands will face greater challenges.According to Datum Intelligence, the high-end clothing market accounts for about 18% of India's $70 billion apparel industry. As India's younger generation pays more attention to brand consumption, this market originally had huge growth potential.
Brands such as PVH Corp, Marks & Spencer, Gap Inc, Under Armour, Nike, H&M, etc. now have to face a tough choice: absorb the increased tax cost themselves or pass the cost on to price-sensitive consumers.
Image source:freemalaysiatoday
Tax Strategy Adjustment in a Global Context
This move is not an isolated case and can be seen as a countermeasure to international trade pressures.
For example, to cope with the possibility of high tariffs imposed by the United States, Brazil proposed as early as July to abolish the 20% federal tax on imported goods under $50, in order to accelerate the diversification of its trade partners.
This "when two sides fight, a third party benefits" situation provides cross-border sellers with a strategic window to reduce costs and lay out diversified markets. The huge potential of the e-commerce markets in India and Brazil, coupled with tax incentives, will undoubtedly inject new vitality into the global cross-border trade industry.
However, sellers must be soberly aware that tightening tariffs globally remains the mainstream trend. In July this year, the European Parliament overwhelmingly passed a proposal to abolish the duty exemption threshold for imported goods under 150 euros, aiming to better control the influx of low-value e-commerce goods.
Image source:European Parliament
The Future Path for Cross-Border Sellers
For sellers, adapting to the new global tax norm means having to reshape their competitiveness model. Instead of struggling with ever-shrinking costs, it is better to invest resources in building a high-value brand image, optimizing cross-border supply chain efficiency, and deepening localized operations in target markets.
The comprehensive strength in these dimensions is the core engine for the next stage of growth.
India's tax reform is not only a domestic policy adjustment, but also a microcosm of changes in the global trade landscape. In this era full of uncertainties, the only constant is change itself. How to adapt to and leverage these changes will be a challenge that every cross-border seller must face.
