The textile industry of Tamil Nadu has appealed the state government to reduce VAT on raw cotton and cotton yarn cones from 5 per cent to 2 per cent which would be on par with the 2 per cent CST.
According to a SIMA press release, the industry in the state has been facing too many challenges in the recent past from acute power shortage, steep increase in the transport cost and also from the higher VAT.
It said that Maharashtra has reduced VAT on cotton cone yarn from 5 per cent to 2 per cent and West Bengal has exempted hosiery yarn from 5 per cent VAT posing severe challenges.
As large volume of cotton yarn is procured by Tamil Nadu weavers and knitters from neighbouring states taking advantage of the 2 per cent CST rate, spinning mills have started incurring losses from April 2014.
“As fabric and hank yarn are exempted from VAT, the evasion has become rampant during the last two years and created havoc for the honest mills,” the press release added.
T Rajkumar, chairman of SIMA said that when the VAT rate was increased from 4 to 5 per cent, weavers and knitters in Tamil Nadu started increasing their volume of cotton yarn purchase from neighbouring states.
He pointed out that the normal profit margin for a spinning mill is only 3 to 4 percent and the tax evasion by a few mills is seriously affecting viability of honest spinning mills in the state.
He added that reduction of VAT on cotton and cotton cone yarn would fetch more revenue to the government as currently over 65 per cent of the volume of business is taking place with fabric billing, hank billing and without billing.
He has said that a rough estimate made by SIMA has revealed that 2 per cent VAT on cotton cone yarn would bring over Rs 200 crore in additional revenue, as inter-state purchase and tax evasion would become unattractive.
The SIMA chairman appealed to the chief minister of Tamil Nadu to consider the long pending plea of the Association and reduce the VAT on raw cotton and cotton cone yarn from 5 to 2 per cent.
The predominantly cotton based textile industry in Tamil Nadu, accounts for 47.5 per cent of spinning capacity in India, 70 per cent of knitting capacity and 18 per cent of powerloom capacity.
