Designed to make many consumer goods cheaper, India's recent tax overhaul is causing concern for global fashion brands like Zara, Levi Strauss, and Lacoste. Under the new law, apparel priced at more than Rs 2,500 (about $29) will be taxed at 18 per cent, a significant increase from the previous rate of 12 per cent. Meanwhile, clothing below that price will see a reduced tax of just 5 per cent.

This change could be a major setback for the premium apparel segment, which makes up about 18 per cent of India's $70 billion fashion industry. This sector has been fueled by a growing number of wealthy and brand-conscious young people. However, executives are worried that this demographic is still price-sensitive.

Retail operates on razor-thin margins, and overheads like rent are extremely high, said a CEO of a foreign brand in India. The growth expected earlier won't happen now, the official added

This tax increase is a ‘double whammy’ for domestic garment makers. In addition to the new domestic tax, their thriving export business to the US is already struggling with a 50 per cent tariff imposed by the previous presidential administration.

In a surprising twist, the same tax reform that raised levies on clothing actually lowered them on expensive goods like luxury SUVs, reducing their tax rate to a flat 40 per cent. The Clothing Manufacturers Association of India (CMAI) has warned that the higher tax on apparel could be a ‘death knell for the industry’ since clothes priced over Rs 2,500 commonly purchased by the middle class.

For brands like Superdry India, most of its products, including jackets and shirts, now fall under the new 18 per cent tax. Similarly, not a single men’s T-shirt on the Lacoste India website is priced below the new $29 tax threshold. The tax hike is also expected to impact the clothing budget for weddings, a major business in India.