Gold: Jewellery, refining set to lose lustre

Higher duties could squeeze the sector's margins further

The Union Budget presented on Monday has proposed a one per cent excise duty on gold jewellery and increased duty for gold refining. The move follows observation in the Economic Survey that gold is highly subsidised due to a lower tax structure and largely consumed by the rich.

However, Finance Minister Arun Jaitley has clarified there will be no tax on interest from sovereign gold bonds and deposits under the Gold Monetisation Scheme (GMS). Also, there will be no tax on capital gains for individuals on redemption of sovereign gold bonds. Long-term capital gains arising on transfer of sovereign gold bonds shall be eligible for indexation benefits. Interest earned on deposit certificates issued under the GMS and capital gains arising from them shall be exempt from tax. Both changes are applicable from April. (THE GREAT CRASH)

Gold accumulated in the past can now be declared under the amnesty scheme coming into force from June by paying 45 per cent of the value. This is expected to help declare accumulated gold on record and part of that could come to the GMS. The finance minister has, however, taxed gold jewellery while leaving out silver jewellery.

Articles of jewellery (excluding silver jewellery, other than studded with diamonds or other precious stones such as ruby, emerald and saphire) will attract excise duty of one per cent if the unit is not taking input/Cenvat credit benefits and 12.5 per cent if it is taking those benefits. However, small scale units with Rs 6 crore turnover per annum for non-Cenvat credit units and Rs 12 crore in the case of units taking such credits will be lowered "along with simplified compliance procedure", according to the memorandum of the Finance Bill.

Gold being a high-value commodity, any jewellery unit processing 20 kg-plus gold will fall in the excise net.

According to India Bullion and Jewellers Association (Ibja), excise duty on jewellery will create more trouble for the sector, which is in a bad shape. There are about 10 million artisans working in the sector and most of them are likely to become jobless. Ibja expressed worries about inspector raj, as well.

"Around 80 per cent of manufacturing units in the sector will have to close down," said G V Sreedhar, chairman of the All India Gems & Jewellery Trade Federation.

The FM has not clarified on the status of setting up a gold exchange. He has also not revised import duty on gold. Another big change proposed is on the dore refining sector. Dore is unrefined gold. Refining of gold in India has increased significantly in the past year. The FM has squeezed these benefits by increasing the respective import and excise duties.

The memorandum states, "Countervailing duty on gold dore has been increased from eight per cent to 8.75 per cent, while excise of refined gold made from dore has been increased to 9.5 per cent from nine per cent. Excise duty exemption under the existing area-based exemptions on refined gold being prospectively withdrawn."

"Now, domestic area refineries will get only 0.5 per cent margin compared to import of refined gold, which is not viable and many small refineries would find it difficult to survive," says James Jose, secretary, Association of Gold Refineries and Mints.

Refineries in excise-free zones such as Uttaranchal will still get higher benefit compared to domestic refineries by 0.75 per cent. Thus, their margins, which were earlier at two per cent, will now be reduced to 1.25 per cent.

To incentivise imitation jewellery, the government has increased import duty on it from 10 per cent to 15 per cent.