The gem and jewellery industry across India was largely disappointed by the Union Budget for 2012-13 presented in parliament by the finance minister earlier today. The All India Gems and Jewellery Federation (GJF), apex body of the domestic trade had called for a three day nationwide closure of all jewellery establishments (see separate story) to ask for a repeal of the increased excise duty and the move to collect tax at source on cash purchase of bullion or jewellery in excess of Rs 2 lakh.

“GJF is unhappy with the imposition of excise on the entire sector @ rate of 1% of 30% of the value of the invoice and the introduction of the new measure to tax at source,” said Vinod Hayagriv, Former Chairman, GJF. “It will not only create additional administrative hurdles for the consumer and the trade, but will take the gems and jewellery sector backward and will discourage organized retail,” he added.

The export sector focused on the failure of the government to accept a presumptive tax. “It is disheartening for us,” said Sanjay Kothari, Vice Chairman, GJEPC. The GJEPC had suggested this step to make the industry more competitive globally and also as a better way to curb the menace of round tripping than the 2 per cent duty imposed on the import of cut and polished diamonds.

While terming the Union Budget 2012-13 “pro-reform and realistic given the current fiscal and political challenges”, Rajiv Jain, Chairman, GJEPC felt that “One-sided measures to control the forex reserves of the country by making gold, coloured stones and gems dearer for the consumer could actually encourage trafficking of gold into the country through illegal channels.”

Kothari urged the government to ensure that the “One per cent duty imposed on jewellery will not lead to an ‘inspection raj’.

Will the increase in duty hit consumer demand? Many leading members of the trade did not feel so. Mehul Choksi, Chairman Gitanjali Gems, who also heads the G& J Committee, FICCI obsreved, “The hike in duty on gold imports from 2 to 4 per cent and 1 per cent excise duty to be levied on 30 per cent of the invoice value for all forms of jewellery will have a nominal impact on prices and not effect jewellery demand, which has remained strong despite a 32% increase in gold prices over one year.”

He however cautioned the government that it should “ensure that the hike in import duty on gold will not encourage illegal imports of gold”, adding that these “had fallen considerably after duty rates were reduced some years ago.”

WGC India and Middle East Managing Director Ajay Mitra also said, "While there may be a very short-term impact on demand for gold as a result of the hike in customs duty, we believe in the long term, this increase will not substantially affect demand."

Vijay Jain CEO, Orra was quoted as saying that the extension of the 1 per cent excise to non-branded jewellery would ensure a level playing field.

K.H. Viswanathan, Director, RSM Astute Consulting International, said that while the Tax Research Unit of the Ministry of Finance had recently clarified that if brand name is not affixed or embossed on the jewellery or article itself but appears on the packing such as the jewellery box or pouch etc, such goods will not be treated as branded jewellery and thus will not be liable to excise duty, “the impact of this circular has been negated with this amendment.”