Textile mills favour steady reforms

Textile mills are hoping that the Manmohan Singh government will carry forward the tax reforms measures initiated by its predecessor over the last two years in the sector.

Statements by a prominent ally of the United Progressive Alliance that it will seek the restoration of excise duty exemption for powerlooms has unnerved the sector. Indian Cotton Mills Federation Secretary General DK Nair, however, is optimistic.

"Our hope is that with two economists as our Prime Minister and Finance Minister, the duty structure will not be altered. The restoration of any exemption will only assist tax evasion and encourage sector fragmentation," Nair told Business Standard.

In the last two Budgets presented by the NDA government, duty structure in the textile sector was rationalised from over 32 per cent to around 8 per cent. In addition, excise duty exemptions were removed in segments like hank yarn and processing to complete the Cenvat chain. In the wish-list being finalised for the forthcoming Budget, textile mills have sought the removal of the Additional Duty for Textiles and Textile Articles. The duty, which constitutes around 15 per cent of the basic excise duty, was imposed in the late 1970's to finance a 'controlled cloth scheme'.

The scheme was done away with by the government during the eighties. Despite this AT&T continues to be imposed. The mills also want that the excise duty on man-made fibres should be brought down from 16 per cent to between 12 to 8 per cent while the duty on 100 per cent cotton woven fabric (processed using power machines) should be increased from five per cent to 8 per cent.

Along with excise duty rationalisation, the textile mills also want more machinery to be included in the list for concessional import duty at five per cent including dyeing and spinning machines.

Another demand is for the removal of turnover based excise duty exemptions presently available for powerloom and garments. Presently, powerlooms with an annual turnover of 25 lakh or below and garments with a turnover of 30 lakh and below are exempt from excise duty. They are also permitted to set up more than one unit. There are over 3,000 spinning and composite mills in the country.