Expert panel moots 8% merit rate on textiles

P Vaidyanathan Iyer

The report by the N K Singh group on the textiles sector has recommended a merit rate of 8 per cent for a period of three years for most of the items in the sector to enhance its competitiveness. The merit rate for textiles is distinct from the 16 per cent Cenvat (Central value added tax) which is levied on almost 70 per cent of excisable products.

The interim report submitted to the Prime Minister's Office in January-end, will be considered while firming up the tax proposals in the forthcoming Budget.

Senior government officials said: "A sharp cut in excise rates has been recommended." For the recommendations to be effective, they should be adopted in full, the officials added.

In a bid to spur exports, which would largely promote growth in the textiles sector, sources said the group has recommended withdrawal of the excise exemption presently available to woven readymade garments like woollen or shoddy yarn and wool tops manufactured by the small scale industry. This will also tackle the problem of large-scale misuse of the excise exemption facility, sources said.

The group's report has also called for introducing the Cenvat credit facility on actual basis to the knitwear sector. Except for man-made and synthetic fibres, which the committee has suggested should attract a 16 per cent Cenvat, all the other products in the sector should be levied the merit rate of 8 per cent, sources said.

According to them, the group has examined all aspects including Cenvat exemptions, cost reduction of critical machinery, customs duty rationalisation and measures for encouraging investments in the garments sector.

Sources said the group has suggested that the customs duty on textile machinery should be brought down to 5 per cent with a sunset clause for 3 years so that the industry takes benefit of the lower cost to improve its efficiency and competitiveness.

Finance ministry sources said a large part of the recommendations are likely to be taken on board in the Budget 2002-03. These could include continuation of the concessions announced in the last Budget besides allowing exemptions from Cenvat and countervailing duty on jute machinery and some other critical items.

Sources also said the group on textiles has recommended customs duty cuts on certain items including intermediates of synthetic fibres. The objective was to make these products available to the user industry at competitive prices.

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