As soon as Finance Minister Pranab Mukherjee proposed a tax hike on gold in all its forms during the presentation of the Union Budget on March 16, jewellers across the country rose in unison in protest against the hike. After 21 days of striking work in vociferous opposition to the levy of excise duty, particularly on unbranded gold jewellery, they resumed business on the assurance of the finance minister that he will look into their demand of rolling back excise duty.
They also made it clear that the strike has only been “suspended” till May 11, by which time they expect the government to roll back the “harsh” proposals. The big jewellers had turned impatient and were averse to losing business, especially in the ongoing marriage season. Additionally, Akshaya Tritiya, an auspicious day for buying gold, fell this year on April 24; it is always a big day for jewellers’ revenues. As a result, big jewellers have launched new and attractive schemes that promise to cushion the impact of the rise in gold prices.
If the strike had continued, jewellers would have stood to lose heavily. The suspension of the strike was some kind of a tactical retreat by jewellery makers. They worked on the logic that “today’s business is more important than a promised tax relief tomorrow”.
The kind of record-keeping the excise regime stipulates makes it nearly impossible to evade taxes, hence the jewellery industry is afraid of excise duty. Excise officials usually take a comprehensive view of business and insist on clear documentation for the business from end-to-end — covering the purchase of raw material, storage, processing, inventory of the finished product, the sales and movement of finished goods, cash flow, energy consumption, wages, and so on. Such documentation leaves a clear audit trail and makes manipulation or evasion of duty nearly impossible. This is one of the steps to curb black money for which Mr Mukherjee needs to be complimented. It is the curbing of black money that the jewellery industry seems to be afraid and is clearly indefensible. It is common knowledge that the bulk of the black money generated through kickbacks, scams and other dubious devices finds sanctuary in gold, just as the black money generated by industrialists finds sanctuary eventually in Participatory Notes (PNs) and the real-estate business — helping in not only laundering black money but also in rigging the share market, more particularly the shares of one’s own companies.
Yet, it appears capitulation to the black moneybags is in the offing as there are indications that the pressure mounted on the government by the gold and black money lobby is going to yield results, and the hike in import duty from 2 per cent to 4 per cent ad valorem is likely to be rolled back.
It is unlikely that Mr Mukherjee will give into this kind of emotional blackmail, despite pressures from within the party, because of the yawning fiscal deficit. RBI Governor D Subbarao has said in the presence of the prime minister that the fiscal deficit in 1991 was 7 per cent, and it is running at 5.9 per cent in 2012. The current account at 3.6 per cent is higher than the 1991 figure, and short-term debt at 23.3 per cent in 2012 is much more than the 10.2 per cent in 1991 — a grave dent to the economy.
The jewellery industry has estimated that jewellers lost business of more than Rs 20,000 crore in the 21 days they were on strike. This huge amount shows that it is the biggest source of black money next to the real-estate business. It would be a pity if the finance minister succumbs to the lobby’s pressure.
Already, parochial sentiments have been unleashed, with claims that thousands of Bengali workers and artisans in the state ruled by UPA ally Mamata Banerjee would be rendered jobless if unbranded gold jewellery is brought under the excise duty net. However, the country needs to do everything in its power to arrest the mounting gold import bill, which is second only to the oil bill.
Given the scale of the gold sector’s turnover, there is a case for serious investigation as to whether appropriate taxes are actually being collected from this sector. The finance minister must demonstrate that he is sympathetic to the genuine grievances of jewellery-makers — but will not compromise on pro-revenue proposals in the Budget. The country needs strong regulatory oversight, in the interest of hapless consumers.
Given that immovable properties are also the favoured parking slot of black money owners, it is entirely possible that pressure may be brought upon the government to roll back the potentially effective bulwark against black money in real-estate transactions — the one per cent tax deducted at source on property price in excess of Rs 50 lakh in specified urban areas, and in excess of Rs 20 lakh at other places. Indeed, a Sebi-like regulatory authority has to be formulated to monitor the real estate sector, as most of India’s black money is in circulation in the benami property business.
Vested interests may create a hue and cry, and shed crocodile tears that the interests of the common-man are not looked after. The move may also be assailed as anti-aam admi, for whom TDS, it will be claimed, is an excessively onerous burden. These are all pressure tactics from money launderers, and should therefore be resisted.
Let us hope that the finance minister sticks to his budget proposals on jewellery and real estate levies, and does not relent in face of pressures from various strong lobbies — including leaders in his own party.
The writer is former senior professor, Icfai Business School, Chandigarh
