The government has abolished the 5% VAT levied on fabric with effect from June 1, chief minister Manohar Parrikar announced at a media briefing on Wednesday afternoon.

He said that there was 5% special central excise duty on two products till March 31-cotton fabric and sugar. The central government used to collect the special excise duty and remit it to the state government. Now, from that date, the central government has said that if states want to collect tax, they could levy VAT.

Parrikar said his government had avoided sugar because it is an essential commodity. But in routine course, the government had levied VAT of 5% on fabric. Later, however, the government realized that neighbouring states had not levied such a tax. Parrikar, "Even otherwise, Goans go to Belgaum for their wedding shopping. With an additional 5% tax on fabric, it would only hit Goan businesses more. Goan merchants and traders had come with their representation to me. So we have taken a cabinet decision to reverse our earlier decision."

Though the 5% VAT on fabric has been abolished with effect from June 1, the tax for the two months before June will have to be paid, he said.