A 10 to IS per cent price hike for locally produced yam and fabrics will be unavoidable to absorb the burden of add I tional taxes on the textile mills, according to related Industry circles.

The industry— already tn serious troubles because of shortage of working capital, high costs of production, and marketing constraints — . has been burdened with the customs duty Increase from five per cent to 10 per cent on imported raw materials and the new Value Added Tax (VAT) at 15 per con’ on Imported polyester yam and viscose under the taxation measures for 199192.

Imported polyester yarn and viscose ar used by the domestic textile industry for making items like lungis and

sarees for ordinary males and females.

Imported raw cotton, polyester yam and viscose — the basic inputs for the domestic textile industry — were subjected to only five per cent duty tn 1990-91. The items were exempted from development surcharge at 8 per cent earlier too. But. the duty structure has been raised to 10 per cent in 1991-92 and the VAT has all the more been imposed on Imported viscose and polyester. Raw cotton has however been spared of VAT.

Industry sources said that there was a no sales tax on Imported polyester yarn and viscose in 1990-91. The VAT Is therefore a fresh burden for the textile industry, using polyester yam and viscose as Its raw materials, the sources said.

A leading functionary 6f Bangladesh Textile Mills Association (BTMA) which represents the textile units in the private sector likened the new fiscal load on the industry

to the "last straw on the camel’s back.' "We will not be able to operate our mills by effecting any fresh hikes by about 10 to 16 per cent to absorb the new taxes. If we hike the prices, we will further lose the market to Imported yam and fabrics Including smuggled supplies." he said. The exporting countries like India and Pakistan provides all kinds of Incentives for exports of their yam and fabrics while the .domestic textile mills in Bangladesh are subjected to additional taxes, the BTMA functionary noted.

The enhanced tax rates will hqwever affect both BTMA and Bangladesh Textile Mills Corporation which manages and controls the public sector units. Despite some encouraging trends in production of some BTMC units in July, the plummeting sales forced by new tax-Induced price increases will lead to piling up of finished stocks, the source said. Without .price increases, additional production will en-

tail more losses, they added.

The domestic textile Industry Is dependent mostly on imported raw materials. Locally produced raw cotton can meet only seven per cent of its total needs for raw materials like raw cotton. The rest 93 per cent are Imported.

With price competitiveness of domestic textile Industry with Imported as much as smuggled supplies of raw materials now further lost be-

cause of additional tax burden.it will be difficult for most units to operate without effecting price-hikes in yam and fabrics, the textile circles said. "But we cannot pass the VAT and the enhanced duty to the end-users because that will force us out of the market." they observed. In any case, the textile sector they said will be the loser with employment of several lakh people at stake.

The same circles also re-

sented the provision about deduction of 3.5 per cent as advance Income tax at Import stage. For the Industrial operators in the textile sector, this will mean more liquidity problems for the mills.they explained.

There are now 77 textile mills tn the country These Include 27 composite mills both In public and private sector having 16.20 lakh spindles and 8707 looms.