India may reduce domestic textile industry tax

The Indian Textiles Ministry is set to address the long-standing tax disparity between cotton and man-made fibers (MMF) by soon submitting a proposal to the Cabinet for consideration under a new national fiber policy. According to official sources, the ministry has already circulated a draft of the policy to key departments such as the Ministry of Agriculture, the Ministry of Chemicals & Fertilizers, and the Ministry of Commerce, seeking their feedback and input. The proposed policy highlights that while the excise duty on synthetic fibers and textiles has been significantly reduced in recent years, the current tax rates on man-made fibers remain relatively high. Specifically, cotton is currently exempt from consumption tax, whereas man-made fibers are subject to an 8% excise duty. Additionally, man-made fiber textiles face an 8% central value-added tax (CST), while cotton textiles can opt for a lower 4% CST rate. Reducing the tax burden on man-made fiber textiles is expected to boost their demand and encourage greater adoption within the textile industry. The draft emphasizes that future consumer preferences are likely to shift toward man-made and synthetic fiber-based products. Therefore, India should prioritize policies that promote both the production and consumption of these fibers to remain competitive in the global market. Currently, man-made fibers account for about 41% of India's domestic fiber consumption, with cotton making up the remaining 51%. This contrasts with the global ratio, where man-made fibers represent 60% of total fiber consumption, compared to 40% for cotton. By aligning its taxation policies with this trend, India aims to foster sustainable growth in the textile sector and support the development of its man-made fiber industry.