The Hindu Business Line : Apparel sector seeks tax sops in Budget

AS the apparel sector in the country's textile industry is all set to replicate the success story of India's software segment, the forthcoming Union Budget should address some of the structural problems plaguing the sector.

Disclosing this to Business Line here in an interview, the Apparel Export Promotion Council (AEPC) Chairman, Mr A. Sakthivel, said that Indian garment industry sees the phase-out of the restrictive quota regime governing global trade in textiles and clothing on January 1, 2005 as a major opportunity for accelerated action both by the authority as also the industry.

"If we are adequately armed to face the Chinese juggernaut especially in the context of the opportunity that has been provided to us by the rights extracted by the European Union and the US to use special safeguards until December 31, 2008, this would open a new historic opportunity in the journey of the Indian apparel industry," he said.

He said that the council has presented a memorandum to the Finance Minister, Mr P. Chidambaram, setting out both long-term and short-term charter of demands to help the industry face the challenge of post-MFA phase.

Pleading for 100 per cent tax exemption for period up to fiscal year 2009-10, the council pleads for insertion of a specific Section in the Income-Tax Act, 1961, granting a 50 per cent tax deduction in respect of the profits from export of apparels with an additional 50 per cent tax deduction, if such amount is made over to a special reserve account.

The latter can be utilised within a span of eight years only for acquisition of capital assets including brands, R&D, market development, investment in specified securities for development and maintenance of approved infrastructure projects.

If for revenue considerations the Government is to spurn this suggestion, the council contends that in line with Section 35 (2AB), a new Section granting a weighted deduction to the apparel manufacturers to the extent of 150 per cent of the wages, expenses incurred by approved in-house R&D facilities and Overseas Market Development Assistance.

Stating that all processes utilised in the course of production of exports need to be factored in for determining all-industry duty drawback rates over and above all the service taxes and indirect taxes being borne during the production of goods for export, the council suggests that the duty drawback rates designed to neutralise input levies be increased to 17 per cent.

Mr Sakthivel said that the exporters might be allowed the Exim scrip route in lieu of all-industry drawback for import of duty-free inputs for export production, factory use in the form of capital goods, raw material, accessories, office equipment, computer and vehicles.

Excise duty on all fibres, save cotton which attracts no duty, and yarns should be reduced to 8 per cent, while all the additional levy on textiles and textile products for funding production of cheap cloth, should be abolished.

The council also calls for conferring on all apparel shipments the status of perishable items so that it could be custom cleared on top priority, 24 hours a day and 365 days a year. It said the inflexible labour laws could be amended to generate employment by the industry.

Finally, as the US has identified textiles and clothing as one among the seven sectors on which import duties could become zero by 2015, the Indian authorities counter-proposal would be that India would put a zero import duty on the import of yarn, fibre and textiles and in turn would want the US to put a zero import duty on apparel exports originating from India, Mr Sakthivel said.

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