Footwear manufacturers seek similarity on Excise & VAT
20 Dec '05
2 min read
Finance Minister P Chidambaram has received a unique plea from the footwear industry. The industry has demanded a similar taxation policy for both garments and footwear as they are considered an integral part of a person's attire. While footwear attracts 16% excise duty and 12.5% Value Added Tax (VAT), garments enjoys excise duty exemption and attracts only 4% VAT.
The footwear-makers are also hit by unwillingness of certain states to implement VAT. The main production of footwear is in UP and Tamil Nadu. As both states are not covered under VAT, manufacturers are unable to take advantage of VAT credit, All India Footwear Manufacturers and Retailers Association (AIFMRA) wrote to Mr Chidambaram.
The footwear industry fears that the discriminatory taxation system may act as a major constraint in making fresh investments. “Due to high taxation foreign manufacturers do not want to set up their production units in the country. For the same reason, even the indigenous manufacturers are not planning any major fresh investments in the sector,” an official of AIFMRA said. Major members of the association include Liberty group, Mirza International, M&B Footwear and Metro Shoes.
It fears that the existing tax regime may convert India as a major export destination for Chinese shoes. “Global retail chains prefer China to outsource leather products for their outlets further hurting the indigenous industry,” he added. Recently, a-13 member Indian delegation visited Dongguan and Guangzhou in China to seek Chinese collaboration in leather sector.
The domestic leather sector has been one of the important outsourcing destinations. In October this year, a 12-member delegation of the US footwear industry visited India with an intention to increase outsourcing. The delegation included US footwear giants Timberland, New Balance, Wolverine, Revolution and Paramont Asia. The delegation was jointly organised by Council for Leather Exports and American Apparel & Footwear Association (AAFA).
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