Jewellers' Strike | Is Another Rollback In The Offing?

Two clauses in Budget 2016 have attracted far greater attention perhaps than all the other aspects of the policy document put together! The first of these, relating to the proposal to tax EPF withdrawals has already been rolled back following a spate of criticism from varied quarters. But, for now at least, the government seems far more intent on implementing the other controversial levy – a 1 per cent excise duty on jewellery.

An initial three day protest strike called by jewellery associations has snowballed into an indefinite agitation. In different cities and towns across the length and breadth of the country, jewellers have not only downed their shutters, but are actively out on the streets campaigning for a total withdrawal.

Mumbai saw about 25,000 jewellers join a protest rally a couple of days ago, and similar reports are pouring in from other cities and towns. According to officials of the All India Gem & Jewellery Trade Federation (GJF) which is spearheading the agitation, as many as 3,00,000 jewellers who are affiliated through over 350 trade bodies have backed the strike.

Both the industry and the government are incurring financial losses – the former on direct income from sales, the latter on revenue foregone as a result. In India there are no accurate ways of calculating these figures, but the GJF pegs the losses for the industry at over Rs 7,000-crore per day. One can only guess at what this means in revenue terms.

Why are the jewellers so agitated over the issue? Though initial reactions talked about the additional 1 per cent burden having a direct effect on sales, the more measured response that has emerged over the last few days has focused on the extra administrative hassles that the tax will entail.

The jewellers have been saying that the levy flies in the face of the government’s promise of ensuring greater ease of doing business. The argument is that the vast majority of players in the industry are small companies, many of them making a slow and gradual transformation towards the more organised sector. The karigar is often the owner and the accountant all rolled into one; hence documentation and paperwork are mostly absent, or at best incomplete.

The fear is that in most such cases, the karigar-owner will be incapable of handling the records needed to comply with excise duty payments. In bigger organisations, excise compliance would mean adding new staff, if not an entire department, to maintain meticulous records that will satisfy the scrutiny of officers. The latter is difficult in the best of circumstances, and next to impossible given how ‘normal’ it is in India for officials to detect a ‘flaw’ that can be ‘overlooked’ at the right price.

There are also other issues peculiar to this industry – the complexity of valuation of raw materials given the lack of standardisation; the constant fluctuations of prices which means even two otherwise identical bars of gold could have varied values in the books, etc, etc.

Moreover, if stocks are seized or showrooms sealed pending the resolution of a disputed claim, the high value of the raw materials and stock in trade, much of it part of the working capital on which interest is being paid, can immediately result in a huge financial burden.

These are some of the reasons that have prompted the trade to suggest that they would rather help the government increase revenue through some other means than allow themselves to be subjected to inspections and checks on an ongoing basis. Some of the industry leaders have even suggested that the government could consider an additional 1 per cent Customs Duty in place of the Excise tax.

While the government has so far seemed firm on implementing the Budget proposal, it has already issued a clarification that the levy would only be applicable only on jewellers who have a turnover in excess of Rs 12 crore. As the protests intensify and the jewellery community lobbies with the government will the proposal be totally withdrawn?

History seems to indicate that this is likely – twice earlier, in 2005 and 2012, governments have rolled back similar proposals in the face of intense agitations by jewellers.

Whatever the outcome in the short run, the whole episode once again focuses on the need to have specific tax-related and other policies that mirror the peculiarities of the industry and its particular needs. Evolving such a framework is a two-way process, and industry associations need to proactively formulate their own sector-specific proposals as a starting point for such discussions.