Finance Minister Pranab Mukherjee’s budget doubles the import duty on gold to 4 percent and slaps a 1 percent Excise Duty on all jewelry. Analysts immediately criticized the budget.

 

The All India Gems & Jewellery Trade Federation (GJF) had called for a three-day strike by jewelers over the weekend and has now extended this by two days due to pressure from its members.

 

The government decision to double the import duty on gold has been impelled by the perception that gold imports have been one of the primary causes of India’s growing trade deficit. Analysts say that the decision to impose the excise duty on all jewelry is driven by the need to bring all manufactured articles under a tax regime as a preparatory step towards implementing the plan for a unified General Services Tax (GST) across the country.

 

Gem & Jewellery Export Promotion Council (GJEPC) Chairman Rajiv Jain said, “Our demand for the turnover tax has not been considered and the existing uncompetitive tax environment is driving investments away from India. Additionally, the increase of duty on gold will lead to a corrupt state of affairs due to the greater probabilities of trafficking of gold into the country through illegal channels.”

 

Consumer interest in buying gold will also decline, Jain warned. On a positive note he mentioned the full exemption on branded silver jewelry from excise duty.

 

“The recent increase in the import duty of gold [the government changed the existing rule of Rs 300 per 10 grams to 2 per of the value on January 17], has already had a negative impact on the industry,” said Colin Shah, managing director of jewelry manufacturer Kama Schachter.

 

“For the last two or three years, due to the low duty regime, the industry has mostly been official in its approach. Now considering that there is a large market for gold mainly for investment purposes, many people including farmers save their money in the form of gold biscuits or bars. With a rise in the import duty, it will again lead to cash transactions in the trade in general, which will negatively impact the sector. Additionally, a 4 percent custom duty on gold will also encourage malpractices or smuggling of gold,” Shah added.

 

As Shah is a branded jewelry player, his views on the Excise Duty issue are at variance with small retailers. He notes, “Interestingly, the Union budget has shown some key positive amendments which will help further strengthen the sector. Unbranded precious metal jewelry will now attract excise duty at par with branded jewelry. Therefore, now both branded and unbranded jewelry will stand on a common platform of paying 1 percent excise duty.”

 

Shah also praised the government’s decision to impose a 2 percent import duty on colored gemstones, saying it will prevent round tripping.

 

According to Mehul Choksi, chairman of Gitanjali Gems, “The budget has given incentives to the agricultural sector that will translate into increased incomes and boost savings, resulting in higher demand for jewelry, which is the preferred form of investment for the rural consumer.”

 

Choksi said the hike in duty on gold imports together with the excise duty will have a nominal impact on prices and not effect jewelry demand, which has remained strong despite a 32 percent increase in gold prices over the past year.

 

Choksi also voiced concerns over a revival of gold smuggling “which had fallen considerably after rates were reduced some years ago.”

 

The measures announced in Union Budget 2012-13:

 

·                   Increase in basic customs duty on standard gold bars; gold coins of purity exceeding 99.5 per cent and platinum from 2 percent to 4 percent and on non-standard gold from 5 percent to 10 percent,.

 

·                   Basic duty on gold ore, concentrate and ore bars for refining increased from 1 percent to 2 percent,

 

·                   Duty on refined gold is increased from 1.5 percent to 3 percent,

 

·                   In order to prevent round tripping, it is proposed to impose basic customs duty of 2 per cent on cut and polished, coloured gem stones at par with diamonds.

 

·                   Introduced a levy of excise duty of 1 percent  on gold jewellery not bearing a brand name, along with existing 1 percent on branded precious metal jewellery