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Anil Sasi

Uzbekistan, Kazakhstan offer slew of tax sops

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New Delhi Jan. 21 Faced with labour law inflexibilities and constraints such as high power tariffs and infrastructure bottlenecks, Indian textile players are looking to shift production base. They are looking at alternative locations such as Uzbekistan and Kazakhstan, in a bid to gain cost competitiveness in the global export markets.

Both countries, which are major cotton producers, are heavily marketing a bounty of fiscal sops to Indian textile firms, including heavy price discounts on cotton, power at nominal rates, 10-year tax holidays and superior infrastructure. Indian firms are evaluating investment opportunities in the light of the sops being offered, as well as the added advantage of proximity to key EU markets, industry players said.

Early movers

Spentex Industries Ltd is among the early movers in the Uzbek market, with several other players, including the Vardhaman Group, which is said to be evaluating investment options through both the greenfield and acquisition route. "Several textile units are evaluating options to shift their production base to new locations like Kazakhstan and Uzbekistan, where cotton is available at a 15-20 per cent discount, power at a low rate of around three cents (Rs 1.20) per unit as against nearly Rs 4 per unit in India, besides cheap gas and 10-year tax holidays," an industry representative said.

Uzbekistan has already announced plans to attract investments to the tune of $300 million from Indian textile companies over the next three years.

The Uzbek Government is offering a 15 per cent concession on cotton procurement for spinning purposes and 20 per cent on the same for integrated apparel production facilities.

The Kazakhstan Government is promoting investments into the `Ontustik SEZ', where textile firms would be exempt from corporate income tax, land and property taxes, and also from VAT up to 10 years.

The only basic requirement for investors would be that the textile products should be made from 100 per cent cotton, of which not less than 30 per cent must be Kazakh cotton.

Spentex Industries Ltd had, in July 2006, acquired the business of Tashkent-To'yetpa Tekstil Ltd, a state-owned spinning company in Uzbekistan for $81 million, for which the Uzbek administration extended a number of incentives, including a 15 per cent discount on raw cotton, exemption on corporate taxes, customs duty and VAT. Spentex, subsequently in November, acquired the assets of a company in the country to set up a dyeing facility there.

The Vardhaman group is also reported to be planning to acquire a textile firm in Uzbekistan to expand its operations in the sector, according to industry sources.

More Stories on : Textiles | Overseas Investments | Taxation

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