For the past 24 years, Wazir Damani has built significantly as a leather trader in Dharavi, Mumbai’s most famous pigsty.
It has three retail outlets that sell handbags, wallets, shoes and belts, and a quite successful wholesale business that is nourished by exports and gifts of leather accessories company.
However, with the new tax system on goods and services beginning July 1 Damani does not know how his business will stay afloat. Under the GST, leather goods will be classified as luxury goods imposing 28% – more than twice the 13.5% rate levied on leather products so far.
The central government introduced the GST in order to carry out drastic fiscal reforms, combining a series of indirect taxes in a single national tax.
Goods and services are classified according to different tax brackets by 5%, 12%, 18% and 28% and the GST will be collected at each stage of the production process.
For Damani and about 4,000 other leather goods manufacturers and traders in Dharavi, the 28% tax will be a blow to companies trying to recover from the negative effects of demonetization in November 2016.
“It will be very difficult survival for all of us with small and medium-sized companies in Dharavi skin,” Damani said.
“We only maintain a 10% or 20% profit margin on ourselves, so on what basis does the government take 28% of us?
Last month, the Leather Products Manufacturers Association, which represents more than 500 leather operators in Dharavi, has asked the central government to reconsider the 28% tax bracket for leather goods and related materials such as rexine.
But there is no response, traders expect to see a drastic drop in sales in the coming months. “A purse that costs around Rs 1000 will now be priced at least Rs 1800, if not a little more,” said Damani, who is afraid of losing his long list of corporate clients.
“Bags, shoes and wallets are things that people buy with a specific budget in mind. If they become so expensive, companies will start giving their employees and their customers something completely different.”
Without clarity about how raw and processed leather will be taxed under the GST, and complete uncertainty about how they will handle the accounts and will file tax returns online 37 times a year, vendors acknowledge they understand the actual impact of GST Only later in the year.
“But dhandha [business] has somehow fallen 50% since the demonetization hit us, because there is still not much money circulating in the market,” said Sayed Alim, owner of leather goods Image in Dharavi.
Prior to demonetization, Alim said, Dharavi small-scale leather industry are already struggling with competition from online retailers, who tend to supply their manufacturers on a large scale. “Now our products are more expensive at a time when people do not have as much purchasing power as before, it worries us.”
In the leather industry, however, demonetization and 28% GST are not the only causes of concern. Combined with the repression of the Uttar Pradesh government in the meat slaughterhouses in March increased vigilantism of livestock and the recent ban on nationwide sales of slaughter livestock in livestock markets, leather traders are facing a Unexpected triple shock.