Textile manufacturers close their industries over VAT issue

By Modnath Dhakal

Kathmandu, Nov. 18: Nepali textile manufacturers have shut down all industries across the country from today for a week as the government did not address their demand to adjust the Value Added Tax (VAT).
This latest move from the textile manufacturers has brought about 250 textile industries to a complete halt, and affected the employment of about 50,000 workers.
November 17 coincides with the National Tax Day and the entrepreneurs padlocked their industries on the same day expressing discontent with the government tax provision.
On October 24, the NTA had warned the government to shut all the industries in case their demands were not met by the end of October.
The manufacturers have been protesting the government decision to remove he VAT refund facility, a provision that was announced on May 29 in the budget of the current fiscal year 2018/19 and came into practice from July 17 this year. They have been enjoying 70 per cent VAT refund for the last two decades.
According to the entrepreneurs, the removal of VAT refund facility has increased the textile production cost by almost 9 per cent and made the domestic cloth even dearer.
India has 5 per cent Goods and Services Tax (GST) on domestically produced textile.
They are also disappointed with the government’s counterproductive decision which forced the textile mills to cut their production by almost 50 per cent due to the increasing production cost.
“It is not that we have wanted to ask for the tax subsidy or refund for all the time. If the government regulates the open border, controls the under-invoicing of the cloth at the customs offices, and formulates anti-dumping law and implements it, we no longer need the tax subsidy,” said Shailendra Lal Pradhan, President of the Nepal Textile Association (NTA) at a press meet organised on Saturday to inform about their move.
The NTA says that about 80 per cent of the total cloth need in Nepal is smuggled from India and China and substandard cloth is also being imported from the third countries at cheaper rates.
Pradhan said that the NTA had given alternatives of VAT refund, such as cash subsidy equal to the VAT refund, 30 per cent cash subsidy while purchasing new machines or plants, concessional loan at 5 per cent interest rates, 50 per cent discount on electricity charges, customs duty waiver in the import of machinery parts, chemical and dyes, and 10 per cent subsidy on export, to the government.
President of Yarn Manufacturers Association Pawan Golyan said that though they had urged the government multiple times about curbing the smuggling and under-invoicing, there had been zero progress.
“This is a high potential area and textile’s value chain alone can create 1 million employment in the next 10 years if there are favourable policies,” he said.
The Federation of Nepalese Chambers of Commerce and Industries (FNCCI) and Confederation of Nepalese Industries (CNI) have expressed their solidarity with the NTA and promised to extend necessary support.
“This is unfortunate that the industries themselves are being forced to shut down. The immediate need is to regulate the open border,” said Dinesh Shrestha, Ex-officio of FNCCI Province Group.
CNI Director General Megh Nath Neupane expressed CNI’s solidarity and said that more discussion was needed to decide the further moves.
Revenue Secretary of the Ministry of Finance (MoF) Sishir Kumar Dhungana said that the entrepreneurs should not have shut down the industries as the government was working to decide about the potential ways to address the demand of them.
“A special committee formed to study the status and recommend the solution has submitted its report to the government which has recommended subsidy on electricity, include textile in priority sector lending, tax discount on machine, parts and chemical import,” he said.
According him, as reinstating the provision of VAT refund would be a policy-backtrack, the government is mulling alternatives to fulfill the demands of the entrepreneurs.
“The government is positive to address the demand of textile industries. Growth of domestic industry is the priority of the government. So, the industrialists should keep patience,” said Dhungana.
Though NTA had sent its decision of shutting down the industries to all concerned ministries on October 24, the Ministry of Industry, Commerce and Supplies (MoICS) expressed ignorance about the NTA move.
Nepal needs about 1 billion 50 million metres of cloth for individual and commercial use. However, only 62.5 million metres is produced locally at present.

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