Local yarn industry was not able to compete with outside industries as there tax structure on yarn is in the range of 0-2 percent very low compared to the tax structure of Punjab. With the Punjab government reducing the value added tax (VAT) on cotton yarn and cloth from 6.05 percent to 3.63 per cent, now the gap has been reduced.

VAT imposed in Uttar Pradesh on cotton yarn is zero percent while in Rajasthan, it is around two per cent.

The cut was a long pending demand from industrialists in the state. Now it will be a level playing field for Punjab industry, said Kamal Oswal, CMD, Nahar Industries and industrial advisor to the Punjab CM.

Gagan Khanna, MD, Ari Sudana Industries, said that earlier cotton yarn from outside Punjab was taxed at 6 percent. But three years ago, the Supreme Court ordered the government not to impose the entry tax on yarn. This affected the market share of the local yarn industry.”

Oswal claimed that their yarn industries were running below capacity due to which the industry has suffered losses.

Sanjeev Garg from Garg Acrlyics said that nearly Rs 20,000 crores yarn is consumed in Punjab per annum and out of this roughly Rs 8,500 crore yarn was imported from outside on which Government was getting no tax. So reducing VAT will add up state’s revenue as well.