On September 22, India implemented the largest Goods and Services Tax (GST) reform in eight years, with the apparel industry becoming a key focus area.

According to the new regulations, apparel and accessories with a unit price exceeding 2,500 rupees (about 202 RMB) will see the tax rate raised from 12% to 18%, while the tax rate for low-priced apparel (below 2,500 rupees) will be reduced from 12% to 5%. Footwear products will also implement a similar policy: the tax rate for low-priced shoes will be reduced 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 adjustments of tax policies in 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 seems contradictory, but it actually has its own internal logic.

On the one hand, by lowering the tax rate on low-priced apparel, it directly benefits the low-income group that makes up the majority of the population and stimulates mass consumption. On the other hand, increasing taxes on high-priced apparel raises the operating costs for high-end brands.

The Clothing Manufacturers Association of India (CMAI) and the Retailers Association of India (RAI) pointed out that apparel priced above 2,500 rupees is not only purchased 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 clothing, hand-woven and embroidered products. The tax increase 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, low-priced apparel sellers 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 accidental. The Indian consumer market is still dominated by price-sensitive consumers, and low-priced products occupy an absolutely 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 apparel brands will face greater challenges.According to Datum Intelligence data, the high-end apparel 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 Adjustments 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 cancel the 20% federal tax on imported goods under $50, in order to accelerate the diversification of its trade partners.

This "when two dogs fight for a bone, a third runs away with it" 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 tariff tightening remains the mainstream trend globally. In July this year, the European Parliament overwhelmingly passed a proposal to abolish the duty-free 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 normal means having to reshape their competitiveness model. Rather than struggling with ever-shrinking costs, it is better to bet resources on building a high-value brand image, optimizing cross-border supply chain efficiency, and deepening localized operations in target markets.

The comprehensive strength of 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 take advantage of these changes will be a challenge that every cross-border seller must face.