Effective excise duty on branded garments eased little

Union Budget has given mixed bag of response for the recommendations of Textile Industry. Some of the provisions in the budget that could have a direct and indirect bearing on the Textile and Clothing Industry are as follows.

Budget Provisions:

• The central plan outlay for the Textile Ministry was increased by 27 per cent to Rs 7000 crore for FY2012-13 against revised plan expenditure of Rs 5503.30 crore in FY2011-12. The Total Plan and Non-plan expenditure for the Textile Ministry increased 23 per cent to Rs 7836.41 crore for FY2012-13 against Rs 6445.57 crore in the revised estimates of FY2011-12.

• The revised estimates for allocation of TUFS stood at Rs 3529.67 crore for FY2011-12 against budgeted estimates of Rs 2980 crore. Government has extended Technology Up gradation Fund Scheme (TUFS) for 12th five-year plan. In this context, it has allocated plan outlay of Rs 2775.80 crore under TUFS for FY 2012-13, down by 21 per cent on y-o-y basis. This scheme provides for reimbursement of 5 per cent out of interest actually charged by the lending agencies for facilitating investments in modernization of Textile Jute Industries.

• Government has announced a financial package of Rs 3884 crore for waiver of loans of handloom weavers and their co-operative societies. Of this Rs 2205 crore has been allocated for revival reforms and restructuring package for Handloom sector. Under this scheme fund is being provided for repayment of 100 per cent of principal and 25 per cent of interest as on date of loan becoming NPA and which is overdue as on 31 March 2010 in respect of viable and potentially viable weavers with an overall ceiling of Rs 50,000 per individual beneficiary.

• Further, to provide technical support for poor handloom weavers, it has proposed to set up Three Weavers Service Centers – one each in Mizoram, Nagaland and Jharkhand. It has also proposed to set up two more mega handloom clusters one to cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and neighboring districts in Jharkhand.

• One power loom mega cluster to be set up in Ichalkaranji in Maharashtra; with budget allocation of Rs 70 crore.

• A pilot scheme for promotion and application of Geo Textiles in the Northeastern region is proposed for 12th five-year plan with an outlay of Rs 500 crore.

• Proposal to provide weighted deduction at 150 per cent of expenditure incurred on skill development in manufacturing sector

Excise Duty:

• Government in the Union budget FY2012/13 has increased Standard rate of excise duty from 10 per cent to 12 per cent. Thus the excise duty on the manmade fiber products would be increased from 10 per cent to 12 per cent. Consequently, merit rate of 5 per cent is being enhanced to 6 per cent while 1 per cent excise duty applicable on 130 items is also being enhanced to 2 per cent with a few exceptions.

• The excise duty on readymade garments bearing a brand name or sold under a brand name is being enhanced to 12 per cent. The rate of abatement on such readymade garments is being increased from 55  per cent to 70 per cent. Hence, the tariff value for purposes of charging duty would be @ 30 per cent of the retail sale price.

Customs Duty:

• Basic customs duty on Wool Waste (CTH 5103) is being reduced from 10 per cent to 5 per cent and that of Wool Tops (CTH 5105) is being reduced from 15 per cent to 5 per cent.

• Basic Customs duty Aramid thread/ Yarn/ fabric (Speciality Threads) for manufacture of Bullet proof helmets for Defence and Police personnel is being reduced from 10 per cent to Nil with Nil CVD and Nil SAD.

• Full exemption from basic customs duty exemption is being provided to shuttle less looms, parts/components of shuttle less looms by actual users for manufacture, specified silk machinery viz. Automatic reeling silk reeling and processing machinery and their accessories including cocoon assorting machines, cocoon peeling machines, vacuum permeation machine, cocoon cooking machine, reeled silk humidifier, bale press and raw silk testing equipments.

• The concessional 5 per cent duty available to specified textile machinery under erstwhile Notification No. 21/2002-Customs dated 1.3.2002, superseded by Notification no.12/12-Customs dated 17th March, 2012 is being restricted only to the new textile machinery. Consequently second hand machinery would attract 7.5 per cent basic customs duty.

Budget Impact

Extension of TUFS for the 12th five-year plan is welcoming for the Textile Industry. However, the allocation has been reduced by 21 per cent in FY13. Cheer on allowing the concessional 5 per cent duty on only new machines is offset by the 7.5 per cent customs duty on the second hand machinery. Mostly, textile industry imports second hand machines for their capacity building at lower capex.

This may have a negative impact on weaving and processing industry in the midst of / or planning expansion. Further, the industry recommendation of bringing in neutral fiber policy is kept aside with increase in the excise duty on MMF. The Industry expectation on cut of excise duty on the branded apparel was half met. While the excise duty has increased, the government has increased abatement there by cutting the effective tax from 4.5 per cent earlier to 3.6 per cent.

Outlook

Union Budget has been mixed bag for the textile industry. While the government has extended its helping hand for unorganized handloom industry by financial package and loan waiver scheme; the concerns of spinning, weaving and processing industry left unanswered. On the other hand, extension of TUFS scheme is a breather to the industry.

However, the effective marginal reduction in the excise duty on branded apparel was way short of industry expectations. Increase in excise duty on MMF products will further squeeze the already wafer thin margins of the MMF industry, which is hit by spike in crude oil based derivatives and sluggish demand.