Providing a big relief to the makers of synthetic textile yarn, Finance Minister P Chidambaram on Tuesday announced a cut in excise duty on man-made fibre and filament to eight per cent from 16 per cent in the Union Budget for 2006-07.
"The man-made textile industry is a growth and employment driver. It deserves encouragement. Hence, propose to reduce excise duty on all man-made fibre yarn and filament yarn to eight per cent from 16 per cent," he said in his Budget speech.
The cut addresses a big anomaly in taxes on manmade textile industry by bringing the excise duty on raw material, which is fibre and filament, at par with the finished product that is yarn.
Due to the high taxes on raw material, the spinners were facing difficulties in getting full credit on excise while selling yarn to their customers.
"Due to the anomaly the cash was getting stuck in the system. Now our cash flow problem would be addressed," Vishal Lohia of Indo Rama said.
"We were in fact paying two to three per cent from our pocket as we could not get the entire credit (on the excise paid while purchasing raw material)," Riju Jhunjhunwala, joint managing director of Rajasthan Spinning and Weaving Mills said.
He said due to anomaly in taxes no new investment had flowed in to spinning sector in the last two years and with the problem addressed the investments would begin again.
