VAT rebate cancellation worries textile makers

Kathmandu, July 9

Textile manufacturers have said that the government’s decision to scrap value added tax (VAT) rebate facility on textiles is an anti-business move and will have a negative impact on the textile industry of the country.

Amid Nepali textile products already facing a hard time to compete with foreign textiles, cancelling VAT rebate system in the sector will further deteriorate the competitiveness of Nepali textiles in both domestic as well as foreign markets, according to Nepal Textile Industries Association (NTIA).

Though textile manufacturers have been getting 70 per cent VAT rebate so far, the government has cancelled this provision in the textile industry through the budget for fiscal year 2018-19.

“This decision of the government will directly increase production cost of textiles, which is already high in Nepal, by almost 13 per cent. Following increased production cost, Nepali textiles will not be able to compete with those imported from India, legally or illegally,” said Jitendra Kumar Lohiya, vice president of NTIA.

Citing that Nepali textile companies use more than 90 per cent of local raw materials, Lohiya said that scrapping the VAT rebate system on textiles is contrary to the government’s plan to promote local raw materials-based industries.

Textile manufacturers also said that the increasing illegal import of textiles from India has become a great threat to Nepali manufacturers. “Due to the open border, textiles worth millions enter Nepal illegally because of which domestic textiles are failing to compete in the market. The government should focus on controlling the illegal flow of textiles in the country,” added Lohiya.

Citing the urgent need to curb illegal import of textiles, NTIA officials said that domestic industries are capable of producing desired volume of textiles to meet the domestic demand. According to them, existing textile factories are operating at only 50 per cent of their actual production capacity due to lack of a business friendly policy of the government.

Due to lack of proper government policies, dozens of textile factories have stopped operations in the past few decades.

Besides the need for proper policies, the government should also encourage consumption of Nepali textiles over others to promote the domestic textile industry, as per NTIA.

As per available statistics, a Nepali uses almost 80 metres of cloth on an average (40 metres for outfits and 40 metres for other purposes) annually.

There are more than 200 small- and large-scale textile producing factories in Nepal.