India’s Finance Minister, Pranab Mukherjee, on Friday proposed to impose customs duty of 2 percent on cut and polished colored gemstones in order to prevent round-tripping, bringing the duty on par with diamonds. He also proposed increasing the basic customs duty on imports of gold and other precious metals.
The industry was disappointed with the proposals announced by Mukherjee in Parliament while presenting the Union Budget for the fiscal year starting April 1, 2012.
Mahavir Lodha, the chief executive for Mumbai Wholesale Gold Jewellers Association, said, “The budget is disappointing and these taxes will hurt the consumer demand.”
The Gem & Jewellery Export Promotion Council (GJEPC) stated that in a ”politically safe” budget, the finance minister has announced one-sided measures to control the FOREX reserves of the country by making gold, colored stones and gems more expensive for the consumer. The council explained that one driver behind the current account deficit is due to surging imports of gold and other precious metals in the first three quarters of this fiscal-year. With the announcement of additional duties, the government aims to limit the imports of gold and colored gemstones, GJEPC added.
India’s colored gemstones import surged to $255.02 million during April 2011-February 2012 from $111.3 million one year ago, according to GJEPC’s provisional data. The country exported colored gemstones worth $309 million during the period, up 14 percent year on year, the data showed.
Mukherjee proposed to increase customs duty –on standard gold bars, gold coins of purity exceeding 99.5 percent and platinum– from 2 percent to 4 percent and on non-standard gold from 5 percent to 10 percent.
“Our demand for the turnover tax has not been considered and the existing uncompetitive tax environment is driving investments away from India,” commented Rajiv Jain, GJEPC’s chairman. “Additionally, the measure of increase from 2 percent to 4 percent duty announced will lead to corrupt state of affairs due to greater probabilities of trafficking of gold into the country through illegal channels”.
During the first 11 months of the 2011-2012 fiscal year, India’s gold bar imports rose 44 percent year on year to $10.05 billion, while platinum imports declined to $7 million from $29.3 million a year earlier, GJEPC data showed.
Mukherjee said that basic duty on gold ore, concentrate and ore bars for refining is also being enhanced from 1 percent to 2 percent, while the excise duty, a type of tax charged on goods produced locally, on refined gold is being increased from 1.5 percent to 3 percent.
The government also proposed to extend the levy of excise duty of 1 percent on branded precious metal jewelry to include unbranded jewelry. However, to simplify its operation and minimize the impact on small artisans and goldsmiths, Mukherjee said that this duty will be charged on tariff value equal to 30 percent of the transaction value.
In addition, he proposed to extend small-scale exemptions up to annual turnover not exceeding $300,963 (INR 15 million) for units having a turnover below $802,568 (INR 40 million) in the previous year and to compute turnover on the basis of tariff value. He placed the onus of registration and payment on the person who manufactures the jewelry.
Jain said that the interest in buying gold jewelry and gold bars will also fall if consumers have to pay more duty.
Mukherjee said that branded silver jewelry will be fully exempt from excise duty, which the industry saw as the only exemption that benefits consumers.