Cotton spinners are to benefit from the removal of a 10% value added tax (VAT) on imported cotton after the government issued regulation number 7/2007, which makes cotton VAT-exempt.

Almost every year since VAT was imposed on imported cotton in 2001, spinners have been trying to remove the tax by meeting related governmental departments.

The government had originally promised to remove the cotton tax in January 2006 but the regulation was revised and then completed in December.

Spinners believe that the removal of the VAT this year will help the cash-flow and boost the competitiveness of the industry.

"So far there is substitution of the VAT if the yarn produced is for export but it takes about one year. The VAT is collected in advance before cotton has added value," said Sugiharto, director of textile and garment producer Sritex Ltd.

Customs and excise is currently still collecting the 10% tax on imported cotton.

Djasimoen Misrad, director of spinning firm Sandratex, told just-style: "We are happy now although the customs still collect the VAT until instructional guidelines on the regulation are available from the finance department.

"We are now helping customs to speed up the process, otherwise it will take months to implement the law."

Indonesia imports about 98% of cotton for raw material used by the textile industry.

By Baari La Inggi.