The cotton spinning industry welcomes reduction of VAT on cotton and other yarn from 6.05% to 3.63% in the state budget proposed on Tuesday.

The spinning industry was facing tough times in Punjab due to higher VAT, as spinners from neighbouring states used to sell it at 2% VAT, with this reduction in tax rates, the spinning industry will be able to compete, said Bathinda-based Indian Cotton Association Limited (ICAL) former president Rakesh Rathi.

According to Barnala-based Trident Group spokesperson Rupinder Gupta, reduction in VAT will prove a big relief to Punjab-based spinning industry. Trident has spinning unit at Dhaula near Barnala.

Cotton ginners were demanding various types of tax relaxations. The VAT reduction now though will not directly help them but it will definitely help in arrest the trend of flying off of the industry. The ginning factories in Punjab have reduced to nearly one hundred from 422 in 2003, said Cotton Ginning Factories Association president Bhagwan Bansal.

Punjab has around 100 spinning mills, of which 10 mills with installed capacity of 1.5 lakh spindles had closed recently due to unfavourable tax regime. With the reduction of 2.4% VAT on yarn, the industry hopes to get a level playing field and compete with the spinning industry in neighbouring states.

The development though has no direct bearing on cotton ginning factories but it will provide some relief as demand for yarn will increase and spinning mills will increase cotton purchases, feel the ginners. In the wake of higher VAT in Punjab, the weaving industry preferred to purchase yarn from spinners from Himachal, UP and Uttrakhand.