As the hon’ble FM’s speech for the Union Budget 2016-17 progressed, one hoped for positive changes for one of the leading foreign exchange earners for the country i.e. gems and jewellery industry. However, the industry was ignored yet again. The sector contributes around 6-7 per cent to the country’s GDP. The government has imposed an excise duty of 1 per cent without input tax credit or 12 per cent with input tax credit on articles of jewellery (excluding silver jewellery, other than studded with diamonds and some other precious stones) with a higher exemption and eligibility limits of Rs. 6 crores and Rs.12 crores respectively. The FM also unveiled various plans for phasing-out many exemptions granted to corporate, as the corporate tax is proposed to be reduced from 30 percent to 25 percent over a period. This includes the benefit of section 10AA to new SEZ units will be available to those units which commence activity before March 31, 2020. Also, FM announced a 100 per cent deduction of profits for startups for three out of five years during April 2016 to March 2019, with certain riders. New manufacturing companies incorporated after March 2016 will be given an option to be taxed at 25 per cent plus surcharge and cess provided they do not claim profit-linked or investment-linked deductions and do not avail of investment allowance and accelerated depreciation.
GJF Expectations which were ignored by the government GJF had demanded to scale down the duty on gold from 10 per cent to 2 per cent. The hike of import duty on gold has given rise to large scale gold smuggling, which in turn has affected domestic retail and manufacturing industry. GJF had also recommended that the difference between import duty of raw material (gold & silver) and finished jewellery (gold & silver) to be maintained at minimum 10 per cent. GJEPC Expectations which were ignored by the government GJEPC had demanded introduction of Special Turnover Tax Regime for diamond Industry with 0.75 per cent tax on sales turnover on the lines of other diamond trading competitive nations like Belgium and Israel. The association has recommended start of sale of rough diamonds at Special Notified Zone (SNZ) by implementing 0.25 per cent tax on sales turnover achieved at SNZ of Foreign Mining Companies. GJEPC has also sought inclusion of gems and jewellery under Interest Subvention Scheme and Merchandize Exports from India Scheme (MEIS), involvement of jewellers under Gold Monetization Scheme and reduction in the difference between the import duty on gold dore bars and gold bars. There is currently a huge difference of 2 per cent between import duty on Gold Dore Bars and Gold Bars and the GJEPC wanted the difference in duties to be brought down to 0.25 per cent.
Industry Reactions : Introduction of Excise Duty on Jewellery is a derogatory step, says Saurabh Gadgil, CMD- PNG Jewellers, VP- IBJA 90 per cent of jewellery manufactured by small and micro sector and karigars and hence implementation not at all practical Excise Duty was introduced in March 2012 budget but government had to withdraw it because of it being impractical Jewellery manufacturing is a true ‘Make in India’ initiative which had potential to capture a large portion of $ 270 billion global jewellery market Jewellery manufacturing sector is the 3rd largest employment generator after agricultural & Textile creating value addition of >Rs. 100,000 crore – same as Auto and Chemical sector, hence manufacturing and exports should be encouraged
Tanya Rastogi, Director, IBJA states that levying of excise on Jewellery industry will create more trouble for this industry will create more trouble for this industry which is already starving. There are about 1 crore artisans working in this industry and most of them are likely to become jobless. Tanya Rastogi, Director, IBJA also states that IBJA will make presentation to the Ministry to roll back the excise duty on jewellery. In 2012, the excise duty on Jewellery was rolled back after strong agitating by the gems and Jewellery industry which continued for almost 2 months against levying of excise. The Gems and Jewellery industry is not against duty or additional taxes but is against the excise department which works like inspector raj.
Ishu Datwani, Founder, Anmol Jewellers commented% Overall it’s a good budget with the right fiscal discipline, but as far as the Gem & Jewellery industry is concerned, the 1 per cent excise duty is a regressive step which will be time consuming & will only increase paperwork.
Pritesh Goyal, Director and Designer of SLG Jewellers Pvt. Ltd said Apart from the new landing based price criterion noting was motivating for the Jewellery and Retail industry in the Union Budget 2016 – 2017. It is a lackluster move, not a glittering attempt. Although the proposal that shops will be given an option to remain open on all seven days is a positive move for retailers, which will help to increase sell. Moreover the proposal to make suitable changes in customs and excise duty rates to improve competitiveness and boost ‘Make In India’ will help several businesses like us to have easy trade in our sector.
Aditya Pethe, Partner, WHP Jewellers commented on the 1% excise duty on jewellery that as retailers we were hoping some exemptions or reduction of import duties so the sentiment of the market is obviously low. However, it is important that the government implements such new policies effectively as they have faced this challenge in the past. Niraj Johri, Director, Sparkling Hues said The Gems and Jewellery sector plays an important role in the Indian economy, which contributes around 6-7 per cent of the country’s Gross Domestic Product. Being 30-70 per cent cheaper, environment friendly and conflict free, Lab-grown diamonds have found increased acceptance among the consumers. Talking about 2014 estimate, lab-grown diamond is around 0.1 to 0.5 per cent of the total sale of mined diamonds for end applications. It’s expected to grow in the next five years to 1 to 3 per cent of the total diamond sales. According to a recent study of Gem Jewellery Export Promotion Council, rough diamonds trade in, in India between April-May 2015 valued about Rs. 17,040 crore, a drop of 20 per cent compared to Rs. 21,135 crore during the same period previous year. A report on India Brand Equity Foundation shows that the the overall gross exports of Gems & Jewellery in FY2014-15 was US$ 39.9 billion (Rs. 2, 43,886 crore), with the reflection of growth of 0.43 per cent in Rs term over FY2013-14. According to a report by Research and Markets, the jewellery market in India is predicted to grow at a Compound Annual Growth Rate (CAGR) of 15.95 per cent over the period 2014-2019. With an 8 per cent share in polished diamonds and lab-grown diamonds are expected to grow in the next five years to 1 to 3 per cent of the total diamond sales. India has become the world’s third largest diamond consumer.
Hardik Kapoor, Founder of Jewelsify.com- an online Jewelery Portal said The Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 6-7 per cent of the country’s GDP. One of the fastest growing sectors, it is extremely export oriented and labour intensive. It has potential to employ more over 2.5 million people in coming years. So for a sector that contributes to foreign exchange earnings of the country and plays major role in employment,the expectation have not been met. The gems and jewellery sector which was hoping for a cut in import duty on gold from 10 per cent to 2 per cent, 1 percent uniform GST the same has not been done. The new subject of excise has come in existence in Budget 2016. We need to understand the implications of excise to where and how it comes into picture. Excise has the regulation control on the buying and selling of gold, so we need to understand the implications of it. The result could have been a better mix for business and common man as businesses in turn provide employment. The government needed to implement some research and scrutiny in the matter and consider the easy access function. India has a shortage of gold exploiters and it is the major commodity for jewelry manufacturing. India’s closest competitor is China, which started gold mining about two decades ago, and is now the one of largest gold producers in the world. Also, the gold mining and extraction function would generate huge amount of employment, which would in turn support the domestic industry. This budget at least for the jewellery industry is not Minimum Government but Maximum Governance.
Vijay Jain (CEO and Director – ORRA) said “The budget can be best described as na khushi na gham budget. The budget focus has largely been on the rural, social and infrastructure sectors. However, the underlying theme has been financial consolidation and therefore, the absence of focus on investment led growth. We therefore expect consumer demand to pick up only in the second half of the year helped by the pay-outs from the 7th Pay Commission, improved monsoons and kick in of the budget initiatives of rural and road infrastructure growth. In terms of the retail sector, allowing both unorganized trade to keep stores open 7 days a week, is a huge step forward from a consumer’s perspective. From a consumer perspective, the excise duty of 1 per cent will not largely impact jewellery consumption. The government’s motto is ease of doing business. However, the introduction of excise duty on jewellery will significantly increase the cost of compliance and my sense is that the benefits of the collection would be lost in terms of compliance required by both the Government as well as organizations. Further given the largely un-organized nature of the jewellery industry, existence of small entrepreneurs, karigars and babus will mean more difficulty in implementation.”
Ashutosh Sharma, Designer & Managing Director, Shreem Jeweler commented The Indian union Budget 2016-17 presented by the Hon’ble Finance Minister, our congratulations to the finance minster for announcing a union budget 2016-17. The Gem & Jewelry sector plays an important role in the Indian economy, contributing around 6-7 percent of the country’s GDP. From my point of view I don’t think that jewelers will be happy with today’s union budget. Introduction of Excise duty is an unfavorable step, which further create more problems. Impose of excise duty as it being impractical because more than 80 per cent of jewellery manufacturers are from micro sector. So I don’t think it is going to work. Change in excise tax Jewelry will also affect jewelry stock, as it will automatically go down.
Vishwas Shringi, Founder at Voylla Fashions Pvt Ltd stated “The government has made an excellent move by introducing one-day speedy registration of the companies. This will boost the number of start- ups immensely. Rigid conformity to formal rules prevents action and decision-making, thereby draining energy. With Budget 2016, current red-tapism comes to an end; the energy will now go on building and growing businesses in initial inception phase. Imposition of 1 per cent excise duty on branded Jewellery will have a negative impact on the Jewelry Industry as it is a already a very thin margin business. Another big push by the government for startups is tax holiday for three of five years of setting up the company. This will help startup manage the cash well and will give a very conducive environment for them to flourish. It will help meet the working capital needs during the initial years. We were also hoping to hear timelines on GST, as this could be a real game changer for the industry.
Rajiv Popley, Director of Popley Group commented The new subject of Excise has come in existence in Budget 2016. We need to recognize the ramification of excise to where and how it comes into picture. Excise duties have the regulation control on the buying and selling of gold, so we need to comprehend the implications of it as it has never been there in our industry. This new tax regime has come in as an additional cost to our present endowment. We were taking a gander at a rebate in the custom duty; however there has been no reduction in the same this year also. We expected the Custom duty which was earlier 1 per cent some years back increased to 10 per cent at the time of earlier finance minister to be reduced by the current government authorities. This is our third budget but we have still not got any alleviation on the custom duties. This will have a great impact on the gold and jewellery portfolio.