India to Review Gold Tax
But duty hike on Gold Bullion imports to stay...
IN A MAJOR reversal, India's government has said it will review the tax on unbranded gold jewelry, following 12 days of protests by gold traders across India, writes MineWeb's Shivom Seth in Mumbai.
Following an uproar in Parliament, the Indian government has stipulated that it will tweak the tax on gold jewelry but will not roll back the duty on gold imports,
The doubling of import duty on gold came in for severe criticism from opposition party members in India, during the debate on the Union Budget 2012-13 in Parliament. Allied political parties have joined the opposition members on the issue, in a bid to pressurize finance minister Pranab Mukherjee to consider a rollback.
Following the nationwide strike by jewelers, former finance minister Yashwant Sinha pressed for a rollback of the excise duty on non branded jewelry and called for doing away with the requirement of a PAN card to Buy Gold jewelry worth $3936 (Rs 2,00,000).
PAN or Permanent Account Number refers to a ten-digit alphanumeric number, issued in the form of a laminated card, by the Income Tax Department in India. It is a must to have a PAN number for all those who file their income tax returns. The recent budget has stipulated that any transaction at the jewelers over $3936 would necessitate a PAN card. Sinha has called for the practice to be abolished.
The budget proposal to include unbranded jewelry in the ambit of 1% excise duty on branded jewelry has led to protests and strikes by bullion dealers. Replying to Sinha, Pranab Mukherjee told members of Parliament, ``I understand the plight of small jewelers and an acceptable solution will be found. There is no intention to harass anyone. The argument was that all states were charging value added tax. When you can pay value added tax, you can easily pay excise duty. But let me assure that I am considering it.''
Key political ally DMK joined the opposition members in demanding a rollback of the hike. Participating in the budget debate, DMK leader Kanimozhi said, ``The increase in import duty on gold to 4% is bound to add pressure. It will lead to smuggling.'' Higher import taxes on gold would affect demand in India, where households view the precious metal as a saving instrument, she said.
In Parliament, the issue was raised by different political parties – Arun Jaitley from the BJP, Sukhendu Sekhar Roy of the TMC and Tapan Sen of the CPI (M). West Bengal's industries and commerce minister, Partha Chatterjee, and TMC members have written to the Centre asking for a review in customs duty on gold and excise on jewelry.
While agreeing to reconsider some of the tax proposals on unbranded jewelry, Mukherjee reiterated his resolve to bring jewelers under the tax net under a new formulation. He also made it clear that he needed more time to study the legal implications of whether or not it would come into force immediately.
"I know it (gold) is part of our culture...but the import of gold of such magnitude strains balance of payments and affects exchange rate of the rupee through impacting supply-demand balance of foreign exchange,'' Mukherjee told Parliament members. He expressed concern over the out flow of precious foreign exchange on the import of ``dead assets that cause problems in the country.''
Referring to gold mined in India, he said, the quality of the country's gold bearing ore was ``extremely poor'' and as a result, it was uncompetitive to mine such ore to produce the precious metal indigenously.
India has around 30 gold mines. Each tonne of Indian gold bearing ore yields only 22 grams of gold, Mukherjee said, adding that experts opine that unless each tonne of ore does not produce 45 to 50 grams of gold, then the exercise becomes uncompetitive.
India produces around two tonnes of gold a year against the imports of 900 tonnes, he added.
Though the government has said there will be no step down from the import duty hike on gold and platinum to 4%, the government's proposal "to come out with an acceptable formula'' has left jewelers undeterred in their fight for a rollback, with most deciding to continue with the strike.
Jewelers in Nashik, Maharashtra have decided to continue their strike indefinitely. A decision in this regard was taken at a meeting organized by the Maharashtra Gold Jewellers' Association in Mumbai.
A delegation of the All India Gems and Jewellery Trade Federation recently met the All India Congress Committee member Digvijay Singh, who has assured the delegation that he would discuss the matter with Congress president Sonia Gandhi and Prime Minister Manmohan Singh.
Bachhraj Bamalwa, chairman of the Federation which called for the nationwide strike said members would continue with their demand to roll back the import tax hike.
"Though the finance minister has shown optimism in his speech, we will continue with the strike and will open our shops only after the excise duty and tax on cash purchase are rolled back,'' said Zaveribhai Shah, president of the Jewellers Association, Ahmedabad.