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India
By Zainab Morbiwala
The government of India managed to hit a wrong note with the country’s jewelers with the introduction of a 1 percent excise tax on jewelry, which was announced in the recent union budget presented by Arun Jaitley, the country’s finance minister. To protest against this, all the jewelers across the country went on strike beginning March 2, with an estimated loss to the industry to the tune of about $150 million a day. Then, on March 17, all traders in Surat and Mumbai kept their offices closed to support the jewelers. The strike ended on March 21, after the government said the excise department will not “harass” jewelers, Reuters reported, citing Mohit Kamboj, president of the India Bullion and Jewellers Association (IBJA). The Tax Research Unit of the Ministry of Finance released a circular that stated that a thorough discussion would take place, with plans to form a government committee to liaise with the industry. All payments of central excise duty will be based on first sale invoice value. The government further stated that the central excise authorities will not challenge the valuation given in the invoice provided the caratage, purity and weight of the gold and silver with precious stones and the carats of diamonds and precious stones are noted on the invoice. The central excise officers will not visit the manufacturing units, shops or place of business or residence of the jewelers. No arrest or criminal prosecution of the jeweler will be done and there will be no search or seizure of stocks by any central excise official. The prevailing system will continue. Exporters will be allowed to export based on self-declaration and submission of legal undertaking (LUT) to customs without the need to get LUT ratified by central excise officers.
In an exclusive interview with Rapaport Magazine, Praveenshankar Pandya, chairman of the Gem and Jewellery Export Promotion Council (GJEPC), shared the reason for supporting the jewelers and opposing the levy of 1 percent tax: “In India, jewelry is largely produced by small and medium enterprises (SMEs) who are not equipped to follow the rigid compliance of excise norms. The imposition of this excise tax could have severely impacted jewelry production in India, resulting in loss of employment to skilled jewelry workers.” Vijay Jain, chief executive officer, (CEO) ORRA jewelry brand, also spoke exclusively with Rapaport Magazine stating, “From a consumer perspective, the excise duty of 1 percent will not largely impact jewelry consumption. The government’s motto is ease of doing business. However, the introduction of excise duty on jewelry 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.” Reiterating Jain’s comments, Dinesh Navadia, president, Surat Diamond Association (SDA), noted, “Instead of levying the tax at the manufacturing level, we suggested that the 1 percent should be recovered through some other means. We are not against giving 1 percent to the government. Our concern is with the implementation of the tax as had been proposed in the budget.”
In a press statement, Pandya highlighted the positives, stating that GJEPC welcomed the Inclusion of Separate HS Code for lab-grown diamonds and a separate one for natural diamonds. This is an important step toward curbing the mixing of lab-grown with natural diamonds and thereby creating a fair trade environment with defined verticals for both. The statement also cited that in the budget, a Special Notified Zone (SNZ) had been created to facilitate shifting of operations by foreign mining companies (FMC) to India and to permit the trading of rough diamonds in India by the leading diamond mining companies of the world. Pandya continued, “GJEPC acknowledges the step of incorporating the FMCs to undertake displaying an uncut diamond, without any sorting or sale, in the SNZ.However, industry urges the government to permit the sale of rough diamonds at the SNZ by implementing .25 percent tax on sales turnover achieved at SNZ by FMCs.”
Sharing details on the movement of goods, Jain explained, “In domestic goods, we are seeing a split of 20:40:40 on the VVS:VS:SI markets. Smaller goods continue to do well and we have seen a small increase in the solitaire markets above 1 carat.” Pandya noted, “By and large, the industry players are happy, though I wouldn’t say that they are extremely happy. The March Hong Kong show was positive and we are expecting a positive year ahead as well but with some caution. We may encounter turbulence during the year since economic stability has not come fully in the world market and we need to be prepared for it. I have shared with the miners also that they need to look at market conditions and not indulge in dumping of goods.”Article from the Rapaport Magazine - April 2016. To subscribe click here.
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