23 March 2016 Current Affairs: The tax concessions announced by Punjab and Haryana in their state budgets 2016-17 in past few days for the cotton spinning sector will bring the languishing units back in the saddle. Imports of cheaper cotton yarn by fabric and garmenting units (concentrated in Ludhiana and Gurgaon) in these states from other parts of India had rendered the local spinning units uncompetitive in their own territory due to higher manufacturing cost.The Punjab Government in its pre-poll budget (Assembly elections in Punjab expected in early 2017) has provided a partial rollback of VAT (value added tax) on cotton spinning. The new rate of VAT on cotton spinning will be 3.63% compared to the earlier 6.05%. Punjab has 165 spinning mills with 4.25 million active spindles and consume 6.5 lakh to 7 lakh cotton bales annually.Going one step ahead of Punjab, the younger sibling Haryana has decided a zero rated VAT on cotton spinning in the state that is currently 5%. Haryana has an estimated 2.5 lakh spindles, which consume only lakh bales per annum against the production of 25 lakh cotton bales annually.DCM Textiles, SEL Manufacturing and HP Cotton Textiles Limited are the three large units in cotton spinning in Haryana.The decision of the state government will provide protection to the Punjab based spinning units against the cheap imports from other states which have lower cost of production.Punjab is a major consumer of cotton yarn in north and due to higher tariffs on local manufacturing entities an estimated Rs 9,000 cr worth of yarn is being imported annually from other states. The new tax structure will be a bulwark against dumping from other states to Punjab.The manufacturers also hope to get higher net investment margins with lower VAT as their VAT outgo will decrease. Rajiv Garg, the Managing Director of Garg Acrylics is sanguine as his 3.5 lakh spindles in Punjab would become more competitive profitable with the VAT correction in the state.Having units in both the states of Punjab and Haryana, Neeraj Saluja, Managing Director of SEL Manufacturing Company Limited says that this will boost sales and profits of the manufacturers catering to domestic market.The exporters will also get the benefit as they will have higher working capital at their disposal, said Rakesh Goel, CEO of DCM Textiles Hisar. Adding that the time consumed in getting VAT refund will be saved, Goel said that a zero rated VAT would allow the units with twin advantage of tax waiver and input tax credit.
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