Noida Footwear Inc asks for tax reforms

Claiming that government policies are major impediments to their growth, the Noida-based footwear manufacturers are demanding that they should be treated at par with the apparel industry. This move, according to them, would help enhance footwear export by around 200 percent to 300 percent in the next two to three years, while the market would grow by at least 30 percent in the region.

Inder S Musafir, director, M&B Footwear said, "Due to the heavy taxation, we are unable to compete against our rivals in the global markets because after taxation, the MRP of our footwear goes up by around 15 percent (after deducting the abetment discount)." M&B Footwear manufactures for Lee Cooper and some other global brands. Lee Cooper has a presence in 80 countries. Musafir said that if the industry were to be given apparel status, his company would be able to tap the export opportunities currently being wasted.

Elaborating on the quantum jump in business after the amendment in taxation system, he said, "We will be able to increase our export business by at least thrice in next two to three years because we will be able to compete against our arch rival China on the price factor." He said that quality wise Noida-based or Indian footwear manufacturers are far ahead of China.

Rafiq Malik, president, All India Footwear Association said, "If you compare footwear with apparel, we pay 12.5 percent Value Added Tax (VAT) and 10 percent Central Excise Duty, which is paid at the exit door of the manufacturer." He further added, "If you compare the size of the two industries, apparel is much bigger than us. Even though, we are taxed heavily, the government revenue as taxes from us is in the range of Rs 250 crore per annum."

"When apparel is exempted from the central excise duty why is footwear paying it, when worldwide footwear industry is treated as an integral part of the apparel industry," he argued. As per the current taxation laws the apparel sector has to pay merely 4 percent as VAT.

Malik also advocates for the equal treatment of organised and unorganised manufacturers. "Roughly, both the manufacturers generate around Rs 10,000 crore per annum as revenue. Out of this, 80 percent comes from the unorganised sector in footwear industry. So, in actuality, only

Rs 2,000, from the organised segment, is being taxed. While in apparel industry, both the unorganised and organised segments are being taxed 4 percent VAT."

He says, "If the same system is applied to the footwear industry, the government would be able to generate Rs 400 crore as taxes, while the industry would heave a sigh of relief as new avenues of revenues would become wide open for them (both in domestic and export market)." Also, as the industry grows, simultaneously tax revenue would grow.

Standing in sync with Malik, Sunil Harjai of Siddharth Exports said, "I can't understand the abetment relaxation which is at 30 percent and asking the footwear manufacturers to pay the excise duty at 70 percent of MRP. Does the government think that we are working at the margin of 70 percent and hence need to pay excise duty at the 70 percent of MRP? If this is the case, then I would like to add that in India, whether exporter or domestic player, nobody is executing business at more than 30 percent margin." Therefore, the abetment relaxation should be at 70 percent.
Rafiq Malik said that the abetment relaxation increase from 30 percent to 70 percent would help the industry to increase profits by around 30 percent.

Subhash Kappoor, managing partner, Leather Footwear Biz said, "The government has exempted footwear product from any taxes if it is priced Rs 500 or below. However, there is no such slab barrier in the apparel industry. If the government treats both the footwear and apparel similarly, the export volume of Indian footwear industry can grow by around 200 percent to 300 percent." He said that he is bullish about the export growth because of its lower base rate which is at around 5 percent of the net footwear business volume achieved.

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