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The latest round of customs duty rise has made importing finished jewellery cheaper than manufacturing ornaments in local factories with imported gold. Consequently, jewellers have started importing finished jewellery instead of gold and selling directly in their retail stores.
In the fifth such instance in 20 months, the government raised import duty on gold by two per cent on Tuesday to 10 per cent from less than one per cent in January 2012. The latest round of duty rise brought the duty on gold at par with finished jewellery. Considering the one per cent value added tax, the overall duty works out to around 11.5 per cent on both gold and finished jewellery. Hence, it makes sense for jewellery retailers to import finished ornaments than the bullion and incur the additional conversion cost, which will make domestic origin jewellery costlier.
“Jewellers have started passing on orders for finished jewellery now to overseas companies, which makes sense at an equal import duty of 10 per cent. Orders have started flowing to companies in Thailand and Italy,” said Vipul Shah, chairman of Gems & Jewellery Export Promotion Council. As a fallout of this, local manufacturing units are facing the heat. Many of the them have initiated job cuts, while others await till the revival in demand.
“We will soon meet the commerce ministry to apprise the situation as our own manufacturing units are facing problems with this decision. Hence, we would request the ministry to raise import duty on finished gold jewellery to keep a wide differential for safeguarding our domestic manufacturing units,” said Shah.
