Jewellers body wants changes in tax code

The Rs 112,000-crore domestic gems and jewellery industry has urged the government to modify the tax deduction at source (TDS) structure applicable for it in the proposed Direct Tax Code (DTC).

Through the DTC, the government is advocating uniform tax across the country. In the current draft, a jeweller will have to pay 10 per cent TDS, irrespective of business margin. The industry operates on thin margins, about 0.25 per cent for gold traders and 5-6 per cent for jewellery makers. The retailers’ margin is more, about 15-20 per cent, but this segment is only about 15 per cent of the entire trade. The weighted average margin for the entire business is barely 1.5 per cent, argues the industry.

 

Charging 10 per cent on each player in the cycle and then having each to go through the tedious process of refund will block huge amounts of capital, argues Ashok Minawala, the industry veteran and immediate past president of All India Gems and Jewellery Trade Federation (GJF), which represents around 300,000 jewellers. He adds that only 10 per cent of the value of jewellery items are due to value additions.

GJF has also asked the Ministry of Finance, in its representation given in mid-December, to relax the search and seizure provisions and the tax on gross assets. Minawala said: “The seizure of the entire stock in trade in case a difference is found during raids can ruin the market sentiment. GJF also objects to the 2 per cent tax on gross assets, since the industry operates on small margins with high inventory levels.”

The proposed tax, he said, should be calculated on the basis of net profit and not on the assets. Assets in the form of inventory fetch no return and, hence, such assets should be barred from any taxation, Minawala said.

Without these modifications, the gems and jewellery industry may have to shut down, says their memorandum.

Minawala suggested the government liberalise the rules, to take away business from Dubai. All gold jewellers should be allowed to import gold. The agencies nominated for imports are often operating without enough expertise and actual users may find it convenient to hedge risks.

Last year, the growth of the domestic gems and jewellery industry was 10-12 per cent. The same rate of growth is expected this year.