Gem & Jewellery industry in India is one of the fastest growing sectors in India with an annual growth rate of 15%. India is also emerging as the world's largest trading center for gold targeting USD 16 billion by 2010. India is the world's largest manufacturing centre for gems and jewellery and the domestic market is estimated to be around USD 16.1 billion in FY09.
India is also largest consumer of gold in the world with nearly 800 tones of gold consumption accounting 20% of the world gold consumption. The Gem and Jewellery industry is classified in to various sub segments like diamonds, colored stones, gold & silver jewellery, pearls etc.
However the two major segments in India are Gold and Diamonds. India dominated the diamond processing trade with 11 out of 12 diamonds being cut and polished in India.
The gems and jewellery industry is a major exchange exchequer as major portion (around 80%) of its turn over was contributed by exports. Diamonds contribute to nearly 80% of the entire turnover and of this industry and hence many times the terms 'gems and jewellery industry' and 'diamond industry' are used as synonyms.
According to the Gem & Jewellery Export Promotion Council (GJEPC) latest statistics, export of cut & polished diamonds rose by 18% to 407.36 lakh carats during 9 months period April-December 09. On the other hand, exports of rough Diamonds fell by 37% to 157.09 lakh carets.
The overall exports of Gems & Jewellery at was up by 43% USD 1892.32 million in December 09 due to voluntarily trade stop on the import of Rough Diamonds for one month (24th November 2008 to 23rd December 2008) resulting in the decline of import and thus the exports. Also the US recession and economic down turn seriously affected the overall Exports & Imports of gem & jewellery during December 2008.
The Industry represented by its apex body has solicited for relief measures from the government to improve its lost competitiveness.
Recommendations from GJEPC:
- At present there is a Benign Assessment Procedure for assesses declaring a profit of 6% or more of the turnover from the activity of manufacturing and trading of diamonds. The industry proposed Reduction in net profit rate from 6% to 3% under "Benign Assessment Procedure".
- Considering the difficult export market in FY10, the Industry proposed income from export to be made tax-free by declaring 2 years Tax Holiday for export earnings from all types of Direct and Indirect taxes including income tax. Adding to the above, the industry has asked for income tax exemption to all export promotion councils.
- As per amendments under DTC, the industry seeks exclusion of powers from Authorized officer the power to seize any bullion, precious or semi precious stones or jewellery, which is held as stock in trade of business. The industry requests that no tax should be levied based on the value of assets of the company.
- In addition to above, under Direct Tax Code (DTC), Industry requests that the payments for supply of goods not to be subjected to TDS and the tax incentives available to the units in SEZ and EOU should be continued under DTC.
- Further, the industry seeks import duty on both Rhodium and coral from 10% and 24.42% respectively, to be abolished. It also seeks reduction in import duty on precious and semi precious bead strung with saraffa from 19.63% to 0%.
- The apex body requests for import duty reduction on machineries from 10% to 5%, so as to get in touch world-class technology to India.
- Going ahead, the industry recommended import duty cut on Gold Mountings and findings from Rs 500 per 10 grams to zero.
- The committee has also suggested Allowance of sale of Gem and Jewellery products manufactured in SEZ to the DTA to 25% of total FOB value of last year's exports of Gem & Jewellery items on payment of duty foregone.
Recommendations of FICCI:
The Federation of Indian Chambers of Commerce & Industry (FICCI), the largest apex business organization body; on behalf of textile industry has recommended the following:
- FICCI demands government for reversal of customs duty on gold from current Rs 200 per 10 gm to Rs 100 gm, which was valid until July 2009. Incremental annual revenue vis-à-vis impact on consumer sentiments in light of current high gold price levels would lead to lower stocking by trade members which in turn would impact the livelihood of goldsmiths (karigars) and manufacturing laborers.
- The apex body has also recommended significant cut in the import duty on Gold Jewellery from current 15%. This would encourage the Indian trade to import more jewellery of international design & finish and lead to enhanced domestic production of world-class jewellery and exports from India.
Recommendations from Gem & Jewellery Trade Federation:
All India Gems and Jewellery Trade Federation (GJF), is the nodal and the largest single trade body in India representing Gem & Jewellery industry. The industry has put forth its issues for consideration as follows:
Import duties:
- Reduce the import duty on both Gold and Silver including precious metal scrap and should be allowed at 0% (zero) duty with immediate effect.
- As all raw materials used by the industry are imported with minimal mining within the country, import duties should be reduced. Thus, import duties on finished jewellery needed to be reduced to 5%, on Cut & Polished gemstones to be reduced to 0% and on machinery for use of processing jewellery manufacturing/sale to be reduced to 0%.
- Reduce import duties on finished jewellery into India.
- Recommends uniform VAT rates of 1% to be implemented across India and maintain the same rate. In addition the above, clarification is to be given to all states that VAT set off is to be allowed when raw material is issued from one state to another state for manufacturing of jewellery.
- When the GST is implemented, the rates for GST for the Gems and Jewellery trade should be maintained at similar or lower even in the future.
- Instruct banks to issue gold loans at rate of 2.50% to 3.5% per annum, thereby increasing compliant trade and reducing tax under compliance.
- So as to avoid unnecessary hardships and cost to small traders, increase Audit limits for small business firms in the Gems and Jewellery sector from Rs 40 lakh to Rs 2 crore per annum.
- Abolish wealth tax and Service Tax on the lease rent on retail outlets and Octroi.
- Inconsistency in the Provisions of Direct Taxes Code Bill, 2009 for Gem & Jewellery Industry should be removed.
- As a specific amendment, increase the entitlement from 1% to 3-4% for the duty free import for consumables tools machinery and equipments and CVD exemptions.
- Under RPCG Scheme, GJF recommends that the capital goods imported / eligible for concessional duty based on export earnings for non star trading houses also be made 0% from current 3% on par with star trading houses.
- In addition to the above, it demands annual average achievement to be reduced to 75% of actual average and EO to be reduced to 6 times from 8 times of duty saved amount in eight-year period.
Direct taxes:
- Exclusion from the powers of the Authorized Officer, the power to seize any bullion, precious or semi-precious stones or jewellery which is held as stock-in-trade of the business.
- Proposes nil tax to be levied based on value of assets, under Direct tax code as against current levy of 2% tax on gross value of assets of the company.
- Extend 10 years of tax holiday for companies established in SEZ's till companies, for further 2 years i.e., till 1 April 2012, irrespective of undertaking completing the 10 years period. Similarly provide tax holidays for units located outside SEZ but granted an export oriented unit status by Development commissioner.
- Proposed income from export to be made tax-free by declaring 2 years Tax Holiday for export earnings from all types of Direct and Indirect taxes including income tax.
- Allow the GJF to issue smart cards to enable smooth transit of precious material in the absence of reliable courier services.
- Recommends allocation of separate budget for educational, training & development programs of Rs 350 crore.
- Make mandatory "Hall Marking" of jewellery, and sharing of the draft bill for easy implementation
- Recommends free Import of Gold under OGL(Open General License), for all who have an annual turnover of Rs 50 crore (liberalize beyond the 20 channelizing agencies), with special permission for the GJF to import and distribute bullion as a trade body to its members
- Seeks Government to provide Rs 75 crore of budget for promotion of gems and jewellery of the retail trade in gems and jewellery and also exempt the application of the Lottery Act for ONE national shopping festival yearly across India
- Recommends weights and measures certifications that are recognized across the country and the certificate issued by one office in a state is recognized by all offices without demanding that separate fees be paid at every office jurisdiction.
Analyst expectations
Extension of tax holiday for 2 more years will help the industry to reconcile its lost export sheen on the back of Global economic melt down. Reduction of import duty on gold and jewellery will also enhance India to come close with the international design and its manufacturing abilities.
A special allocation of budget for education and Training & development will help the labor-intensive industry for improving technical abilities in jewellery. However, much of these expectations are not likely to be fulfilled considering the over-riding economic considerations and the need to withdraw economic stimulus.
Companies to watch:
Rajesh Exports, Gitanjali Gems, Titan Industries etc
Outlook:
Gem & Jewellery Industry has been badly hit by the Global economic melt down particularly in the exports of rough diamonds to US and EU nations. A higher raw material cost is putting pressure on the thin operating margins of the industry in many directions.
Thus incentivizing the export-oriented sector will help the industry to garner its lost sheen. Replacement of existing tax with presumptive tax regime will facilitate the gems and jewellery sector.