Centre likely to slash Cenvat rates for textile industry

New Delhi, February 4: | Updated: Feb 5 2002, 05:30am hrs
The Centre is considering slashing the Central Value-Added Tax (Cenvat) rate structure for the textile industry from 16 per cent to a merit rate of 8 per cent for a period of three years to “equip the industry to face post-multi-fibre arrangement (MFA) challenges.”

In its report, the special group on fiscal policy for the textile sector, set up by Prime Minister Atal Bihari Vajpayee, under the chairmanship of Planning Commission member NK Singh, has also recommended reducing customs duty on textile machinery till quantitative restrictions (QRs) on imports of textiles under MFA come to an end.

According to sources, the report is at present being considered by the finance ministry for incorporation in Budget 2002-03. It has observed that the fiscal policy regime needs to be rationalised to encourage large investments in the sector and to equip it to face post-MFA challenges.

The merit rate of 8 per cent Cenvat has been recommended by the group for almost all textile products barring one or two.

The textile industry has been lobbying hard for a cut in excise duties of products and import duties on machinery to enable it to face competition better after the complete dismantling of QRs on imports. To encourage investment and technology upgradation in the sector, the group has suggested that there should be a continuous Cenvat chain to reduce distortions in the system.

The group has recommended that exemption on hank yarn of cotton and man-made fibres should be withdrawn and handloom weavers should be compensated through an appropriate refund/rebate scheme to be announced simultaneously and implemented through states.

In a bid to encourage modernisation, the group has recommended that customs duty on textile machinery should be reduced. It has also suggested that Cenvat exemptions should be given to textile machinery including weaving and processing machinery The textile sector contributes almost 8 per cent to the GDP and has a share of 17 per cent in the total share of manufacturing. It contributes about 9 per cent to excise collections and attributes for 30 per cent of foreign exchange earning of the country.