Indian Jeweller (IJ) Magazine August -September 2019

ExpErt column
Ahammed MP
Chairman,
Malabar Gold &
Diamonds
Import Duty on Gold
Robbing the glitteR
off the industRy
The Union Budget proposal to further increase the gold import duty while toeing
the government’s stated policy of curbing imports of non-essential items has
put the domestic gems and jewellery sector in an extremely precarious position
writes Ahammed MP, Chairman, Malabar Gold & Diamonds
World’s second-biggest goldconsuming
country has now
imposed the highest import duty
on gold. The Union Budget proposal to
further increase the gold import duty while
toeing the government’s stated policy of
curbing imports of non-essential items has
put the domestic gems and jewellery sector
in an extremely precarious position. Not
only 12.5 per cent import duty hike and
has further pushed the domestic gold price
further taking gold beyond the reach of a
large section of the consumers, but it has also
dealt a blow to the jewellers’ intent to become
even more compliant with the taxation and
regulatory matters. So, the industry as a whole
is disappointed.
The disappointment is more so because the
soaring gold prices in the international market
and narrowing of the current account deficit
to 2.5 per cent of GDP in 2019 was setting up
the context for the gold import duty cut of at
least 2 per cent in the run-up to the Union
Budget for 2019-20.
The jewellery retail sector has been
smarting from shrinking business volumes
mainly due to a moderation in economic
growth and higher gold price. Add to that, the
severe liquidity crunch the jewellers have been
facing ever since the bank credit to the sector
started declining in absolute terms after some
murky dealings at a state-run bank became
public. On top of it was the higher import duty
on gold which has been, and is, giving a field
time for rogue elements to illegally ship gold
into the country and sell it in the grey market
which has been witnessing a steady decline.
This has tipped the scale against taxpaying and
compliant players in the gems and jewellery
trade since the grey market could once again
rear its head by selling finished products at
a hefty discount and chip away substantial
volume from the legal business.
Time and again, various industry
representation has made it amply clear to the
authorities concerned that gems and jewellery
industry should be spared from the duty
burden so that the government could reap the
benefits of higher tax revenue from increased
sales of legally run business and eliminate
illegal shipment of gold into the country .
A stimulus to the illegal shipment of gold
into the country will further hurt taxpaying
players in the segment. So, the recent import
duty hike sends a disconcerting signal to the
industry.
From business point of view, import duty
hike on gold from 10 per cent to 12.5 per
cent will prove a double whammy for the
gold retail industry, a segment which is critical
for generating the much-needed jobs for the
economy. This is because, on the one hand, it
will lead to a substantial increase in the input
costs of the industry sending the retail prices
up thereby hitting sales. Before the budget,
import duty of 10 per cent and GST of 3
per cent was levied in gold and the total tax
impact amounted to 13 per cent. Given the
changed scenario, the tax calculation is likely
to go up to 15 per cent. Jewellers are not
prepared to absorb the additional tax
burden and the end- consumers will
end up bearing the brunt. As the
festive purchase is just months
away, the import duty hike
will not go down well with
the retailers. Duty hike is a
trade-sentiment dampener.
So, the government
ought to step in with
policies to support a
sector which can play a
vital role in supporting
industry growth and
creating jobs in thousands, if not in lakhs.
The sector contributes to around 7 per cent
of the country’s GDP and 15 per cent of
total merchandise exports. It employs over
4.64 million workers and is expected to add
another 8.23 million by 2022. And the lion
share of gold ornaments manufacturing and
diamond polishing (approximately 70 per
cent) happen in the tiny, small and medium
industry segment. These facts and figures
amplify the importance of the segment and
its vital role in stepping up economic growth
accompanied by jobs as well as its critical
importance in revving up small scale sector.
Therefore, if the decision to impose higher
duty on gold is not reversed, it will push such
a critical segment of the gems and jewellery
industry to the brink of closure. Gold has the
ability to play a key role in the Indian economy.
Its hedging ability against all uncertainties
is an established fact. Hence, a transparent
jewellery retail market and stable gold policy
framework will help gold in rediscovering its
true glitter.
140 | august-september 2019 | INDIAN JEWELLER