Nepal's textile industry is close to collapse as the government has not offered any stimulus package in the budget for the coming fiscal year 2020-21, the Nepal Textile Industries Association said.

President of the association Shailendra Lal Pradhan said the textile sector was not listed among the 44 industries that were allowed to open partially, even though it had been severely hit by the virus lockdown with 95 percent of the factories shuttered.

The association said the government's annual financial plan did not contain any relief measures for the textile industry despite the suffering brought about by the prolonged stay-at-home order.

"The budget has been touted to be designed to boost and revive the economy, but it has failed to address any of the problems caused to the industry by the virus lockdown," said the association.

The textile industry did not receive the facilities announced in the past, and even the existing ones have been taken away, it said.

The government had proclaimed that the textile industry would get interest subsidies, but it did not happen. And now the budget statement says the electricity tariff exemption has been removed. "The association is shocked and surprised by this announcement," it said.

A lot of money has been poured into the domestic textile industry. In 2014 alone, investors pumped in another Rs1.5 billion, encouraged by the government announcement that they would get a 70 percent value added tax refund.

All that investment has been jeopardised with the government withdrawing the VAT adjustment facility that fabric manufacturers have been getting for the past 20 years, Pradhan said.

“The industry incurred heavy losses in the last two years for lack of government support. Government policy seems to have been designed to discourage the domestic textile industry, as it is insensitive to the sector's problems,” he added.

"We have reached a decision to close the industry as the government has failed to address a single demand," said the association. Industry leaders urged the government to act to solve their problems or simplify the company closure procedure so they can make a quick exit.

"We are already unable to compete with Indian textiles as they have been entering the country illegally. We are being priced out of the market because the government charges 13 percent value added tax on domestically manufactured fabrics while there is only a 5 percent goods and services tax on textiles in India,” the association said.

A favourable investment climate cannot be created with the continuous entry of contraband textiles from India and other countries, which the government has not been able to control, it said.

Smugglers can easily sneak in various types of cloths due to the open border with India. The administration has not been able to stop the illegal trade which ranges from border hopping for household goods to wholesale business.

In order to legalise fabric imports, the association has recommended to the government to determine the actual value of the merchandise and create a provision to impose customs duty and tax, but officials have not taken this proposal seriously.

"We are not able to do anything when textiles and textile products are being imported into the country at prices lower than the cost of the raw material," the association said.

According to the association, there are 250 small and large textile factories operating in the country that provide 50,000 jobs. If the industry goes belly up, the state will have to feed the more than 250,000 people that depend on them.

The textile industry has planned to create 500,000 new jobs over the next five years to support the government's target to create 750,000 jobs in the coming fiscal year. But the way things are going, it may be difficult to make that happen, the association said.