The five per cent value-added tax (VAT) levied by the Maharashtra government last year is posing a threat to the furnishing fabric and clothes industry in the state. The sector, which is operating with less than three per cent of margins, has started gradually moving to Gujarat to protect its interest as a home-grown, scattered and labour-intensive industry.

The government of Maharashtra, through a notification in August last year, imposed the five percent VAT since September on furnishing fabric and cloth industry. The levy, however, has wiped out manufacturers' margins completely making thereby operating units unviable.

"The Rs 1,250-crore furnishing fabrics and cloth industry is currently in deep trouble due to the levy of VAT. A majority of Gujarat and Uttar Pradesh-origin unit owners have already shifted and others are willing to move out of the state soon," said Shiv Kanodia, secretary, Bharat Merchants Chambers (BMC), the trade body protecting the interest of the furnishing industry. According to him, over 125 units of different size have already shifted to Gujarat, Uttar Pradesh, West Bengal and other states, where VAT is not a deterrent. Surprisingly, the state government is expected to add a minuscule Rs 6 crore in its kitty through VAT collection.

Due to moving out of the furnishing industry, allied industries like packaging, dyes and chemicals, freight forwarding and transporters also suffered huge losses. Ultimately, it's the loss to the labour, mathadi workers, weavers and farmers of Maharashtra. "We, therefore, urge the government of Maharashtra to abolish the VAT with retrospective effect in the coming state budget. The exodus will only gain momentum if the situation is not rectified forthwith," said Yogendra Rajpuria, president, BMC.