Punjab has reduced the value added tax (VAT) on cotton yarn and cloth from 6.05 per cent to 3.63 per cent. The cut was a long pending demand from industrialists in the state. Now it will be a level playing field for the Punjab industry. Earlier, the local yarn industry was not able to compete with outside industries as their tax structure on yarn is in the range of zero to two per cent which is very low compared to the tax structure of Punjab. However, at least now the gap has been reduced.

Earlier, cotton yarn from outside Punjab was taxed at six per cent. But three years ago due to a Supreme Court order entry tax on yarn was withdrawn. This affected the market share of local yarn industry. Every year, yarn worth Rs 20,000 crores is consumed in Punjab and out of this roughly yarn worth Rs 8,500 crores is imported from which no tax revenue is obtained. So reducing VAT is expected to add up to the state’s revenue as well.

VAT imposed in Uttar Pradesh on cotton yarn is zero per cent while in Rajasthan it is around two per cent.