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Impact of budget proposals on textile industry by Surinder Anand

21 Mar '07
4 min read

While Government is taking measures of a revolutionary nature in its fiscal, commercial and industrial policies, there has been no effort nor a desire to make suitable changes in its labour policy. Corrective measures have to be taken to bring the labour policy inline with the hard realities of economics and managements.

The budget has therefore not provided adequate fiscal relief to the garment sector of the textile industry. The exporters hoped for exemption from Fringe Benefit Tax and Service Tax but are now feeling let down as the expected relief has not been announced. The Budget brings disappointments amongst the garment exporters as there is hardly anything new in the Budget proposals that will lift the sagging morale of our exporting community, especially those in the garment sector.

The Finance Minister, conveniently ignoring the legitimate expectations and needs of the Garment Exporters, has failed to restore 100% exemption to export earnings under Section 80 HHC of Income Tax Act. The increase in the Education Cess from 2 to 3 per cent and levy of Service Tax on some more export related services will further increase the transaction cost rendering our products uncompetitive.

The Finance Minister should have restrained from increasing the education cess by 1% and also relieved the exporters from the burden of Service Tax, Education Cess and Fringe Benefit Tax. The Custom Duty on import of Textile Machinery should have been abolished allowing free import of machinery at nil rate of duty.

The Government should therefore, now revise upward the duty drawback rates by increasing the coverage for determination of rates so as to ensure full reimbursement of transaction cost including excise duty, Custom Duty and all State and Local Taxes as we export goods and services and not taxes. Another most controversial and negative proposal includes the Service Tax on rented commercial properties which will further increase rentals.

However, the Finance Minister may be complimented for few positive features of the Budget which will boost Technology Upgradation and competitiveness of the textile industry. The reduction of excise duty and customs duty on Man Made Fibre and Yarns will neutralize the duty structure in the textile industry. Extension of TUF with enhanced allocation of funds and the proposal to increase the allocation of funds for the scheme for integrated textile parks will increase investment and generate employment in the textile industry.

Garments Exporters Association

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