The AAP government in Delhi has decided to roll back the hike in VAT on low cost footwear and textiles which was proposed in its budget 2016-17. This was an uniform rate of five per cent on all varieties of textiles and fabrics except khadi and handloom.

Traders opposed the tax. They said this would see a flight of customers to nearby states. With raw material costing five per cent more, the finished products would cost five per cent more too. So buyers would look at Gurgaon and other parts of Haryana and because of this Delhi would lose its distribution character.

Even a five per cent hike in taxes, say traders, is significant since customers would have to bear the higher tax on both the raw material and the finished product. They say other manufacturing hubs like Surat, Mumbai, Malegaon, Erode, Gorakhpur, Kanpur, Amritsar and Ludhiana levy no blanket VAT on textiles and fabrics. So they think it's irrational to slash taxes on readymade garments that cost over Rs 5,000 to five per cent but levy a 12.5 per cent tax on cloth that costs Rs 50.

It was felt that with the imposition of VAT, all types of clothes would become costly and affect the livelihood of workers in this trade.