The Govt Should Ignore Jewellers' Strike - Vivek Kaul's Diary
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The Govt Should Ignore Jewellers' Strike

Mar 23, 2016

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The jewellers went on a strike on March 2, 2016. On March 20, it was reported that they had called off their strike after suffering losses of Rs 18,000 crore. But that did not turn out to be the case.

Media reports suggest that on March 21, a section of the jewellers continued to strike.

A PTI reports suggests that: "Most jewellery shops and establishments in the national capital remained shut on Monday despite government's assurance that there will be no harassment by excise officials. Some jewellers kept their shops shut in Mumbai as well."

Meanwhile the strike has caused a lot of trouble and heartburn for brides to be. A recent report in The Hindustan Times discusses the plight of women who are about to get married and do not have their gold jewellery in place. The report quotes one such bride to be as saying: "I'm hoping this strike will come to an end soon otherwise I have to go for imitation jewellery on my D-day."

The brides to be have been left in limbo because the gold jewellers have been on a strike for close to three weeks. The jewellers are striking against an excise duty of 1% on "articles of jewellery [excluding silver jewellery, other than studded with diamonds and some other precious stones]" that the finance minister Arun Jaitley proposed in the budget of the government, for 2016-2017, that he presented last month.

The jewellers are also protesting against the mandatory quoting of the Permanent Account Number (PAN) for cash transactions of Rs 2 lakh or more. This change came into effect from January 1, 2016, and hence, has been place for well over two months. Before this, quoting the PAN was necessary for cash transactions of Rs 5 lakh or more.

Media reports now suggest that the jewellers are claiming that this change has had a huge impact on their sales. Given this, they want the Rs 5 lakh limit to be reinstated.

So what is it that the jewellers fear? They want the government to withdraw the 1% excise duty because they fear harassment by excise inspectors. While this is a legitimate concern, the government has asked excise officials not to make factory visits. A section of the jewellers called off the strike on this assurance from the government. Also, it is important to understand that the 1% duty will generate an extra audit trail.


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Further, it is important to understand that gold in its various forms remains an important conduit for black money. Black money is essentially income which has been earned but on which taxes have not been paid.

As the White Paper on Black Money released by the ministry of finance in 2012 points out: "Cash sales in the gold and jewellery trade are quite common and serve two purposes. The purchase allows the buyer the option of converting black money into gold and bullion, while it gives the trader the option of keeping his unaccounted wealth in the form of stock, not disclosed in the books or valued at less than market price."

The beauty of gold is that a lot of wealth can be stored in a very small space. A lot of black money in the form of gold can be stored in a single locker. Hence, instead of holding on to paper money the holders of black money prefer converting it into gold. Also, with gold there is no fear of wear and tear as is with paper money.

A study on black money carried out by business lobby Federation of Indian Chambers of Commerce and Industry (FICCI) points out that: "Nearly 70-80 % of the transactions involving Jewellery are made using cash (black money)." This clearly explains how those with black money like to hold their wealth in the form of gold.

As the FICCI study points out: "Undisclosed sale of gold, silver etc. results in escapement of applicable tax liabilities Tax authorities have estimated purchases of gold bullion and Jewellery as the second-largest parking space for black money, next to Real Estate."

Given this, the move to make PAN card mandatory for cash transactions of Rs 2 lakh or more when it comes to making jewellery purchases, is an important move. If it leads to the sales of jewellers falling, then so be it. The black money wallahs might figure out alternative parking spaces for their money, but then why should the government make it easy for them? I mean you should not be able to get out of your house, walk down your street and convert your black money into gold. It has to be a little more difficult than that.

The FICCI study further points out that: "Apart from unreported cash transactions that lead to black money, jewellers (specifically small jewellers) often sell ornaments that are made using adulterated gold. This practice also contributes to black money, as the jeweller typically does not report the full profit made by selling ornaments at premium rates (when they were made using adulterated gold, which is cheaper)."

Hence, while gold jewellery is a conduit for black money, it also helps generate black money. Further, many jewellers discourage the use of plastic money and customers who want to use their credit card or debit card to make the payment, are typically asked to pay 2% extra.

One excuse offered by jewellers is that many buyers do not have a PAN card. Well, if someone is in a position to pay Rs 2 lakh or more for jewellery, I am sure he can get a PAN card made as well. It shouldn't be that difficult.

Once these factors are taken into account, it is in the best interest of the country that more jewellers are brought under the tax ambit. And that being the case, the government should not back down on its recent moves and let the jewellers' strike continue.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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19 Responses to "The Govt Should Ignore Jewellers' Strike"

Ash

Mar 28, 2016

Some point contrarian to Mr. Kaul's view:

1. 1% excise and this is for every step of jewelry making. To make one jewel set, six to seven different jewelers are involved. So you will end up paying 6-7% excise for one jewelry set. Thus this will help Made in India Jewelry costlier, thus we will see jewelry made in Dubai or Thailand soon regularly.

Factors in favor of Gold:
1. Govt. prints money degrading value of money. They run budget deficits bringing down value of money. Only gold is till now which is holding and helping Indian families apart from their hard work.
2. If Govt. is so much sincere about black money, it should bring parties under RTI act.
3. Gold does not give any value just by holding it, but still all rich investors buy it and are buying more because governments are fool. From George Soros to Mark Fabers to Jim Rogers everybody is buying more Gold so why an average Indian do not buy gold.

Small jewelers are justified in their strike as it directly hit their livelihood, not because of PAN but because of excise. 1% excise at every step of jewelry will make them uncompetitive and all big brands who can do all work on their own will benefit.


I am with small jewelers in it because who made this excise is a fool. These are my personal views and may be I may be wrong in some.

Cheers

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R Varadarajan

Mar 28, 2016

It is surprising that the jewellers are on strike opposing the introduction of the 1% excise duty and the need for Pan card for purchase over 2.00 Lakhs. After all it is the problem of the buyer and surprisingly, in this case the seller is shedding crockodile tears for the buyer. If the case of harrassment by excise department is the reason, then the entire industry should be on strike as most industries go through it, and why this industry should get a preferential treatment?. If increase in the price is the reason, it is the problem of the buyer. The person who is buying a jewellery with a material value of Rs.80000 ( 15-17 % wastage and 5- 8% making charges)at 1.00 lakh, since he has no choice, I wonder why would he mind paying 1% to the Govt to make a legitimate purchase. In the case of PAN card requirement, it is again the problem of the buyer, so long the purchase is legitimate, since he would be paying through cheque/debit card/credit card and he would definitely be having Pan Card. In fact, I would go one step further, when the Govt insists that TDS should be deducted on FD interest beyond Rs.10000, with a view to curb black money, they should put the same yard stick to jewellery purchase as well and insist on Pan card for purchases above Rs.10000 or Rs.20000 like contract payment, Professional fee, etc.

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Hemant goyal

Mar 27, 2016

Mr Vivek and other esteemed members who have put there comments here on this topic I have few questions for all of u ....
1 would any of you park your black money in jewellery.. Where u procure the jewellery after paying labour charges I.e. In between 12 to 15 % minimum...? That means for every 100 u spend u get 85% value of goods and rest is the expense in it.
So would b wise decision to invest in it...? Provided the fact whenever u sell it ( keeping the gold rate neutral on buying and selling) you will get lesser amt then u invested ... Think again
2 secondly , many you will say we may invest in bullion coins and not in jewellery to avoid lab charges.... Well good point . How many among you know that jewellers have already given in written to govt assuring them they will stop sales of any kind of coin or bullion to any retail customer with immediate effect? And mind you ......this suggestion was provided by the jewellers council in curbing black money and not by any govt agencies.
3 in 2013 Pranab mukhrejee,then finance minister imposed the same duty, our dear pm then cm wrote a letter to Pranav da and requested to abolish the duty immediately. Friends can google and confirm this fact .so simple question why u turn now? .... Doesn't it seems like a opportunist political case? Where in opposition u have to blindly criticise the ruling party move to seek solidarity to the masses and then betraying as tables turned....? Another jumlaa....
4 if excise is the only way to curb black money, I wonder the sectors where it is been already implied years back...... have become all Corruption free.....? I urge u to ask your friends or relatives who r dealing with this department and drive an honest opinion and post here. They will tell you reality the real or grass rout problems of this department,and also mind you to ask if there any hafta system involved to those inspectors..?
5 the pan card issue...... Friends u may not know out of 100 Crore plp in our country only 22 Crore people hold pan cards and rest either don't fit into the bracket or exempted to pay taxes. Take One category as farmers.... And mind you there r rich as well as poor farmers .......They don't have any pan no with them.....now how to bill this gentlemen when he comes to buy a jewellery exceeding 65 grms ( assuming rate of 3000 per gram ) and the jewellery value exceeds the pan limit? I must one thing ...... forget the case of big fat weddings even a small marriage done with few resources have some gold jewellery piece involved given to the daughter by her parents for a luck charm and her prosperity,ask your elders if not so. How to deal with it? Will govt take the bold step to tax the Kisaan...? The rich one s at least ...? I highly doubt considering the vote bank politics. You can also google the recent RTI disclosure of exempted income in agriculture 2015 2016. It may shock u dearly. Wil. Govt tax them ..?
6 you may all agree to the fact that large part of black money is generated by ministers politicians political parties. What happens when they are asked to come under RTI...? In 2013 when Supreme Court ordered all parties to come under the ambit of RTI and disclose the Chanda they got from different corporates and businesses men's... You know what did they do..? They amended the bill and passed with support of all political parties in one go and cleared both the houses in 2 days...just imagine.....
SHOULD'NT BE LAW EQUAL TO ALLL
WHY TARGET A PARTICULAR PROFESSION?
If government wants to start the cleaning process..... I urge them to start with themselves first and set an example to all.... Look I did some cleaning in my party and ask u for some cleaning in your respective professions
Would govt dare to start with themselves ?
Kindly do needful research and and post healthy arguments here.... Kindly avoid particular name chanting and Bhakti of Bhakts...plz drop useful and intelligent insights here.
Regards

Like (4)

krishnaprasad

Mar 26, 2016

I really appreciate the move to impose 1% excise duty and making mandatory of PAN card for jewellery purchase. But implementing this government should also provide some alternative solution as around 3 crores of people are under this industry for their livelihood.

Mainly the black money plays a major role politicians and trust formed by various religious people.
If we raid the politicians house, ministers house and various religious trust and take away 50% of the unaccounted assets [both movable and unmovable] we can pay full of the national debt.

Like (4)

Vgmore

Mar 23, 2016

These are very positive steps taken by government. Why jewellar oppose good steps taken by govt. They have very good opportunity to show transparent transaction.It is everybody's responsibility to contribute some share for social development.government should also bring poor people for small share oftax

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ajay

Mar 23, 2016

I support all the proposals in this write up.

Like (1)

Manish Jain

Mar 23, 2016

Mr Vivek, pray tell me what do you tell the customer who has been saving for months/years for a measly purchase of only 65gms of jewellery which works out to more than 2L Rs. A Jeweller is not just supposed to take his PAN but also deduct TDS/TCS as if VAT wasn't enough for the poor guy (OR) your better mind supposes that any person who has bought jewellery more than 2L has earned that amount just a day before !? People exchange their old family jewellery or spend their savings of a long time to make that, at times one time, purchase of 2L jew !!! The Govtt is killing the physical market to sell it's paper gold. Perhaps our Hon'bl FM has taken the dialogue of the character 'Virus' from movie '3 idiots' a bit too seriously who said "Life begins with murder".
If you are so concerned, it's not wrong to be, with black money stored as gold then it would be prudent if all these restrictions are applied on bullion not jewellery. If the new (actually draconian) law is so progressive as the Govtt claims it to be then why did they oppose it years back when in opposition !? Didn't they want India's progress at that time !? Perhaps a lot of money whether black or white would remain with the Govtt if they or their agents in bearaucracy do not literally escort out looters through diplomatic channels. Mr VM is not the first one and he won't be the last one either, however disheartening it may sound.
Jewellers are neither against taxes nor probity nor transparency but are definitely dead against forceful imposition of archaic laws, procedures and departments infamous for harassment, exploitation and extortion. It's high time this should all end. FULL STOP.
Thanks & Regards,
A law abiding, tax paying, revenue and employment generating Jeweller.

Like (1)

Suresh Kabra

Mar 23, 2016

I strongly agree with your view. A person has to quote his PAN whenever he deposits cash of more than INR 40000/- in any bank. I strongly feel that same rule should be applied for purchase of jewelry or any other item from any shop. Only person with black money will oppose such move. If dwellers on strike, let them be. As it is, I feel very small No of them would be filing their ITRs correctly.

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Sethu

Mar 23, 2016

I fully agree with Vivek has said.

Looking at recent things Real estate bill,Taxing jewellery , I think PM Modis Govt.is more sincere in doing right things than UPA.

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nvgk bhat

Mar 23, 2016

I fully subscribe to the view points expressed by the author.
the govt measures will also curb greed for the yellow metal

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