The Rs 1,12,000 crore domestic gems and jewellery industry has urged the government to modify tax deduction at source (TDS) structure suitably in the proposed Direct Tax Code (DTC).
The government in July 2009 drafted DTC for implementation after suitable feedback from the industry. Through DTC, the government is advocating uniform tax across the country.
In the current format, the jeweller will have to pay 10 per cent TDS irrespective of their business margin. Since the industry is operating at wafer thin margin with gold traders gain 0.25 per cent while, jewellery makers and retailers make 5-6 per cent and 15-20 per cent respectively. But, the jewellery’s share in the entire business is very low. Therefore, a better margin in entire business comes to around 1-1.5 per cent, which is very low compared to other industries.
Now, on that if 10 per cent of total amount is stuck with the government as TDS, refund of which is a tedious task, and the trader if deals with a couple of jewellery makers then their entire capital is stuck as tax, said Ashok Minawala, the industry veteran and immediate past president of All India Gems and Jewellery Trade Federation (GJF), the trade body representing over three lakh jewellers across India.
Raw material constitutes about 90 per cent of the value of jewellery items while value additions form 10 per cent. On the existing DTC, a sum of Rs 1.70 lakh will be paid as TDS on the current value of a kilo of gold. In turn, suppliers’ margin will stand at Rs 4,000 against their blockage of fund of Rs 1.70 lakh.
GJF has also asked the Ministry of Finance in its representation mid-December, to relax search and seizure provisions and tax on gross assets. Questioning the government’s motif towards such provisions, Minawala said: “The seizure of entire stock in trade in case difference is found during raids can ruin the market sentiment. GJF also objects to 2 per cent of tax on gross assets since the industry operates on small margins with high inventory levels.”
In this case, a company earning 2 per cent net profit will require to pay the same tax as a company earning 8 per cent net profit. Hence, the proposed tax 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.
Meanwhile, GJF threatened that if the suggestions are not considered and necessary changes are not incorporated in the DTC, the proposed provisions will be highly detrimental to the operations of the assesses of the gems and jewellery industry. The industry can not in the current format. If changes are not done that the industry will have to shut down, he asserted.
Minawala, however, suggested that the government should liberalise the policy to take over business of Dubai. All gold jewellers should be allowed to import gold. Since, nominated agencies are operating with or without expertise, actual users may find convenient for hedging risk in the global markets.
The industry is estimated to grow between 12-15 per cent this year on Indian consumers’ long aspiration to gold. Last year, the growth of the domestic gems and jewellery industry was recorded between 10-12 per cent.
