Union Budget disheartens industry
Budget 2016 which was likely to be a game changer for the industry has created a stir in the industry as government announced imposed an excise duty of 1 per cent.
The Union Budget 2016-17 was a big disappointment for the gems and jewellery industry especially for the gold jewellers and traders. The government has imposed an excise duty of 1 per cent without input tax credit or 12 per cent with input tax credit on articles of jewellery (excluding silver jewellery, other than studded with diamonds and some other precious stones) with a higher exemption and eligibility limits of `6 crores and `12 crores respectively.
While the excise duty has been creating stir in the industry, the Budget 2016 also unveiled various plans for phasing-out many exemptions granted to corporate, as the corporate tax is proposed to be reduced from 30 per cent to 25 per cent over a period. This includes the benefit of section 10AA to new SEZ units will be available to those units which commence activity before March 31, 2020. Also, FM announced a 100 per cent deduction of profits for startups for three out of five years during April 2016 to March 2019, with certain riders.
New manufacturing companies incorporated after March 2016 will be given an option to be taxed at 25 per cent plus surcharge and cess provided they do not claim profit-linked or investment-linked deductions and do not avail of investment allowance and accelerated depreciation. In Budget 2016, Finance Minister Arun Jaitley has offered a new sheen to sovereign gold bonds and the gold monetization scheme by making them more tax friendly for investors. Through these schemes, the government hopes to discourage domestic gold demand, a big burden on the country’s external balances as it is met largely through imports.
According to the Budget proposals, gold bonds will be exempted from capital gains tax at the time of redemption. However, long term capital gains from the sale of the bonds will continue to be taxable and eligible for indexation benefits. The Budget has also proposed to make the interest and capital gains from the gold monetization scheme tax free. It is estimated that 22,000 tonnes of idle gold is lying with Indian households.
The Budget 2016 couldn’t meet any expectations of the jewellers. Aditya Pethe, Partner, WHP Jewellers comments, “That as retailers we were hoping some exemptions or reduction of import duties so the sentiment of the market is obviously low. However, it is important that the government implements such new policies effectively as they have faced this challenge in the past.” This financial year budget has completely disappointed the gems and jewellery sector as the industry fears the revival of inspector raj with the excise duty of 1 per cent imposed on the jewellers.