Domestic jewellers recommend 1.25% duty under GST

Industry promises multi-fold rise in revenue than at present and no parallel economy

The Rs 2,50,000-crore gems and jewellery industry has recommended 1.25 per cent of levy for it under the coming Goods and Services Tax (GST).

This is based on a recent study by global consultancy Deloitte, appointed by the industry body, All India Gems and Jewellery Trade Federation (GJF).

The recommended rate, however, is far lower than the slabs before the government for GST applicability. The committee set up to consider applicable rates under the GST has recommended four slabs -- of five, eight, 12 and 16 per cent -- for various sectors.

The gems & jewellery sector contributes nearly seven per cent of the country's Gross Domestic Product and operates with a margin of between three and four per cent. The government had earlier hinted at the lowest possible levy for the labour-intensive sector. The segment is also known for a growing parallel economy, stoked by any high levy.

"We have recommended the government 1.25 per cent of tax under GST, of which one per cent should be states' share and the remaining 0.25 per cent of the Centre. The industry has assured the government that at the effective rate of 1.25 per cent, the respective governments' income would be manifold than their present tax collection from the gems and jewellery sector. Any tax rate above two per cent would be counter-productive," said Ashok Minawala, Director, GJF.

The current effective tax rate is around two per cent, of one per cent excise duty and one per cent of value added tax. Excise duty was levied in the 2016 Union Budget; prior to that, the effective rate was one per cent.

"History suggests that a higher levy on gems and jewellery has opened a plethora of other channels, difficult to monitor. Barring Kerala and a couple of others, all states have levied taxes at around one per cent. Even the government of Kerala has an effective rate of 1.1 per cent, despite its books showing five per cent. No state finance minister so far has recommended an increase in their effective tax rate on gems and jewellery," said Minawala.

The government has seen only 16,000-17,000 registrations of entities under GST. With the minimum turnover threshold for registration being Rs 20 lakh, almost 95 per cent of units would come automatically under the new regime. The industry points to this as to why the government's revenue collection would go up manifold, with no industry problem on compliance.

"The GST Council has proposed multiple GST codes for the gems and jewellery industry -- 13 major codes, with over 50 sub-codes, as against only one until now. We have explained the criticality of the issue to the government. It will be extremely difficult for over 80 per cent of the players to adhere to this compliance procedure, as one ornament would come under various codes and, hence, be difficult in terms of its classification. Thus, maintaining of stocks would be very difficult. We have therefore recommended the government standardise the industry with one code," said Manoj Kumar Jha, proprietor of Kamakhya Jewels, a high-end jewellery maker and exporter in this city.

Increasing complexity would prompt customers to purchase goods without bills, GJF warns.