Man-made fibres may get tax cuts

RUN UP TO BUDGET 2006

There could be goods news for the man-made fibre sector. Finance Minister P Chidambaram is expected to accept the textiles ministry's proposal to lower Customs and excise duties for the sector.

Government officials said the textiles ministry had sought a reduction in Customs duty on man-made fibres to 8 or 10 per cent from 15 per cent at present. This will be in step with the government's objective to reduce the peak tariff rate to 10 per cent.

Similarly, the ministry has favoured lowering the mandatory excise duty of 16 per cent on man-made staple fibres and man-made yarns, including textured yarns. The rest of the sector such as fabrics, made-ups and garments attracts an optional Cenvat of 8 per cent.

While lower Customs will help mills access cheaper man-made fibres, lower excise is likely to benefit Indian producers. There is a greater sense of urgency to rationalise the duty structure in the sector in the face of a two per cent decline in the domestic production of man-made fibres. The matter has also been deliberated by a group of ministers on textile exports headed by Agriculture Minister Sharad Pawar.

The move is also aimed at reducing the discrepancy in the duty structure between cotton and man-made fibres. The government has already rationalised the duty structure for cotton where import duty is 10 per cent and which attracts an optional Cenvat of 4 per cent.

There can be also be further Customs duty cuts on some items of textile machinery. The National Manufacturing Competitiveness Council had identified textiles as one of the focus areas for the government, in order to achieve a 12 per cent growth in the manufacturing sector.

Chidambaram, during his pre Budget interaction with industry associations, had also said textiles would be one of the focus areas for the government in the Budget.