The reduction of VAT on cotton and other yarn has been welcomed by cotton spinning industry in Punjab. The state has around 100 spinning mills. The industry hopes to get a level-playing field with the VAT reduction and compete with the spinning industry in neighboring states.

Cotton ginners were demanding various types of tax relaxations. VAT reduction will not directly help the cotton ginning factories but it will provide some relief as demand for yarn will increase and spinning mills will increase cotton purchases. Ginning factories in Punjab have reduced to nearly 100 from 422 in 2003.

In the wake of higher VAT in Punjab, the weaving industry preferred to purchase yarn from spinners in Himachal, UP and Uttarakhand. Out of the 100 spinning mills in Punjab, ten mills with an installed capacity of 1.5 lakh spindles had closed recently due to the unfavorable tax regime.

The spinning industry was facing tough times in Punjab due to the higher VAT. Spinners from neighboring states used to sell it at two per cent VAT, but with a reduction in tax rates, the spinning industry will be able to compete.

Reduction in VAT will prove a big relief to the Punjab-based spinning industry.