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AP textile traders fear huge business losses

The state government expects traders to cough up five percent in VAT on textile sales, and could earn about INR1,000 crore in revenues. Taxes gets passed on to price-conscious customers. Commercial tax authorities have seized goods in transit, approximately 10,000 bales, across the state.

Textile traders in Andhra Pradesh (AP) fear a 50 percent drop in business, which they say will move to neighbouring states, if the AP government fails to revoke its decision to levy a five percent VAT on the sale of textiles in that state, said the state textile traders’ association.

A state government order wants textile traders to register with the tax authorities, declare turnover and pay a five percent VAT on a turnover exceeding INR50lakh. For sales under INR50lakh, the tax rate is one percent.

The state could earn INR1,000 to INR1,200 crore in revenue from this one decision alone, said a senior AP tax official who did not want to be named.   

Between January and March, 2012, commercial tax authorities seized goods in transit, approximately 10,000 bales across the state, according to Andhra Pradesh Federation of Textile Associations (APFTA) president Ammanabolu Prakash.

"Why implement VAT on textiles in our state when no other state does so?” asks the APFTA president.

“The government wants us to pay a five percent VAT, a five percent penalty and interest from July 11, 2011. Some of the goods seized were not even manufactured in July, 2011,” said Prakash.

Prakash runs a textile store in Secuderabad. “We are agitating right now and have not passed on the new VAT rate to our customers. But if we have to, we will not be able to compete with other states,” he said.

A large chunk of their sales happen during the marriage season, said Prakash. Indian wedding shoppers are big spenders. If people have to pay five percent more on their purchases, they would rather shop outside the state, he added.

The December marriage season saw a 30 to 40 percent drop in business as far as textile traders in the border districts are concerned. Textile traders in these districts started passing on the new VAT rate to customers. “They were under the impression that Andhra Pradesh is collecting VAT,” Prakash said.

APFTA will now seek an appointment with the Prime Minister, the Union Finance Minister and UPA chairperson Sonia Gandhi and submit a memorandum, Prakash said at a press conference in Hyderabad on April 9, reports The Hindu.

APFTA also plans to observe an indefinite bandh beginning April 30 seeking abolition of VAT on textiles. It will organize a protest march, in the first week of May, and asks textile traders from across the state to head to Hyderabad protesting the new VAT regime.

Chief Minister N Kiran Kumar Reddy has ordered the release of seized textile stocks, but only after the traders furnish an undertaking that they would pay tax, The Hindu Business Line reported.