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To tackle post-quota competitiveness and the Chinese threat in the global textile markets, Finance Minister P. Chidambaram on Thursday spun a new, simpler tax regime for yarn and garment makers.
The FM has made CENVAT optional for pure cotton, wool and silk, and announced that blended and pure non-cotton segments will be taxed at a uniform 8 per cent. He spared pure cotton, wool and silk further, imposing a common 4 per cent tax rate.
‘‘We are happy with today’s changes, which seem to be in tune with the UPA Government’s known priorities in agro and rural-based industries. The provisions will certainly help the industry as well as cotton growers and textile makers. However, to counter expenses on inputs, the blended and non-cotton segment should also be taxed less,’’ said D.K. Nair, president, Indian Cotton Mills Federation.
Under the new tax structure, there will be no mandatory excise duty on pure cotton, wool or silk in fibre, fabric or garment form, while man-made staple fibres will be taxed uniformly at 16 per cent; and polyester filament yarn and textured yarn will continue to attract a 24 per cent duty. The excise on other synthetic and artificial filament yarns has been increased to 16 per cent.
Composite mills, handlooms and powerlooms can either choose to stay with CENVAT, availing credit on excise paid at earlier stages, or can pay no excise duty except on man-made fibres and filament years, if they migrate to the exemption route.
Duties on specified textile and garment making machineries (and parts) have been reduced to five from 20 per cent, and Customs Duty on specified machinery for the silk industry has been reduced from 10 per cent to 5 per cent and these items would be subject to countervailing duty.
‘‘The new tax regime will prepare the industry for the quota regime phase-out beginning next year, when players themselves will decide who will sell how much, to whom, and where,” said Madhu Kapoor, MD, Apparel and Leather Technics Pvt. Ltd. ‘‘We now urgently need to set up units specialising in processing, so that India’s high quality yarn is not exported to Italy, France and Germany to create fabrics,’’ he added.
Industry is also concerned over China recently setting a target of capturing 45 per cent of the global textile market, while India languishes at 2 per cent. According to Faiz Ali, president of Raymonds, “The steps taken by the FM would give a boost to the textile industry and would also help them to effectively counter the Chinese threat”.
Vivek Bharat Ram, chairman of DCM Benetton says, “The entire thrust of the Budget 2004-05, for the textile sector, would benefit the unorganised sector a lot and this was expected. It has also stuck to the Common Minimum Programme.”
