Textile traders in AP have called for a one-day trade bandh on January 24 to protest imposition of value added tax (VAT) on textiles by the state government. The traders resolved not to pay tax until it is implemented uniformly throughout the country.

Until 2010, textiles along with sugar and tobacco was on the centre's additional excise duty (AED) list and was not taxed by the states.

After removal of textiles from AED, the AP government brought it under the purview of VAT in July 2011 imposing a five per cent tax. Traders in all districts agitated against the move demanding that VAT be introduced only when all states approved taxation on textiles. Traders protested the seizure of bales and levying of penalty for non-compliance by the commercial taxes department.

An agreement was arrived at in March 2012 when the government accepted the demand of traders to collect only one per cent tax from April 2012. However, the ordinance was issued only in November 2012. Traders asked the government to keep it in abeyance until taxation is implemented throughout the country.

Traders alleged that commercial tax officials were harassing them by detaining their consignments and raiding shops.

"Textile traders are worried about their future as the business will be lost to neighbouring states due to implementation of VAT in AP. We have no problem in paying VAT, but we have resolved to do so only if it is implemented throughout the country," said Prakash Ammanabolu, president Andhra Pradesh Federation of Textile Associations while announcing the bandh call during a press conference.

Trade analysts say that traders had in their proposal to the government in March 2012 agreed to pay tax from April 2012. When no state came forward to implement tax on textiles and when the AP government issued the ordinance, traders fearing loss of trade, particularly from border districts to neighboring Tamil Nadu and Karnataka, resolved to abstain from paying tax. They added that traders are unlikely to pay tax arrears as they may not have collected tax from the consumers. Rough estimates point to a revenue accrual of Rs 150 to Rs 200 crore per annum to the government from VAT on textiles.

Suresh Chanda, Commissioner CST, said that they are collecting tax as per the ordinance issued by the government. "We have acted as per the ordinance. The traders had agreed to pay one percent tax but now they are going back on it," he said when contacted. He also said that of the more than 20,000 traders who fall in the VAT bracket, about 6,000 have already registered with the department.