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G. Gurumurthy

COIMBATORE, Dec.30

THE proposal of the Kelkar Committee on tax reforms to double the excise duty on cotton yarn to 16 per cent from the present 8 per cent has upset the southern textile industry accounting for over one-third of the country's spindleage. The spinning sector will face large-scale closure if the Kelkar Committee's recommendation is accepted, the apex spinners body, the Southern India Mills Association (SIMA), has said.

Protesting the panel's proposal in this regard, the SIMA Chairman, Mr V.S. Velayutham, said that the textile industry was asking for an unbroken Modvat chain with a uniform 8 per cent excise duty for all sectors so that a level playing field is created across the industry. But increasing the duty at the yarn stage and at the same time keeping the grey fabrics out of the duty net by retaining the optional duty regime would deny the level playing field and defeat the efforts of realising the unbroken `Cenvat' chain. On the contrary, the proposal to enhance the duty on yarn would only increase the incidence of duty evasion in the sector.

The spinning sector has been long recognised as the only segment in the entire domestic textile manufacturing chain to be globally competitive and it has carved a place for itself by staking a 26 per cent share in the global yarn trade. SIMA argued that cotton yarn being a commodity prone to duty evasion, the lower the excise duty, the higher would be the compliance level. It said that when the excise duty on cotton was only 5 per cent, the collection was around Rs 545 crore in 1998-99, but the duty collected in 1999-2000 was lower at Rs 533 crore when the excise duty was raised to 8 per cent.

SIMA held the view that the Kelkar Committee had not got it correctly in so far as the textile industry was concerned as the association's earlier recommendation on the fiscal front was one of seeking a uniform duty on yarn, and not to increase the duty level of 12 per cent on grey fabric. When the grey fabric was subjected to optional duty in the previous Budget, it was only to make the duty compulsory for the grey fabric in the coming years, but the Kelkar panel had now kept the rate at the optional stage itself, which was contrary to the Government's original object.

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