The total levy on gold, which now stands at 15.5 percent, including 12.5 percent import duty and 3 percent GST, is quite high, and the government must reduce it to 7 percent in the Budget 2021 to make gold smuggling unviable, says Malabar Gold & Diamonds Chairman Ahammed MP.
“The government needs to take immediate action in the forthcoming budget to strengthen the gold trade sector. The main thing is to bring tax relief. Taxes on gold, including import duty and GST, should be reduced to 7 percent,” the industry veteran said in an interview to Moneycontrol.
Ahammed said the total levy on gold of 12.5 percent import duty and 3 percent GST – is quite high. The government must reduce the total levy to 7 percent to make gold smuggling unviable.
The mindset of the trade has to change and the government must propose measures in the budget so that acceptability of MRP pricing grows in the trade, he said.
The gold and diamond jewellery trade contributes 7.5 percent of the country's GDP and 14 percent of the country's total exports, employing 60 lakh people in this sector.
Q: What are your expectations from the Union Budget 2021-22?
Although the lockdown to prevent the pandemic's spread in 2020 hit the gold smuggling hard, the government can’t afford to shift its focus away from the outbreak which is not only preventing the organised gold jewellery retail from realising its growth potential but also affecting government tax revenue collection from the trade.
The smuggled gold devoid of quality and purity certification also erodes customer confidence. The extent of the impact of gold smuggling can be gauged from a World Gold Council estimate which says illegal gold shipment fulfils around 17 percent of the country’s annual gold demand. Therefore, in the upcoming budget, the government must propose a reduction of the import duty on gold, as higher import duty is the main reason for gold smuggling and tax evasion.
The total levy on gold – 12.5 percent import duty and 3 percent GST – is quite high. The government must reduce it to make gold smuggling unviable. The gold and diamond jewellery trade contributes 7.5 percent of the country's GDP and 14 percent of the country's total exports, employing 60 lakh people in this sector. So, the government must create an enabling environment so that the sector can play a pivotal role in nation-building.
Q: You have raised an interesting point on introducing MRP pricing in jewellery? How can this be brought about and is the industry ready for this?
I think the trade should gradually move towards MRP pricing. The break-up in pricing in terms of cost of precious metals and stones used in the jewellery, making charges and tax implication commoditise jewellery in a way. The jewellery must be sold based on its aspirational and aesthetics value. However, jewellery retail is unfortunately dominated by a break-up-driven pricing system. The mind-set of the trade has to change and the government must propose measures in the budget so that acceptability of MRP pricing grows in the trade.
Q: The industry has seen large scale job losses for quite a while now. What measures should the government take to revive the sector?
The government needs to take immediate action in the forthcoming budget to strengthen the gold trade sector. The main thing is to bring tax relief. Such a move would help curb gold smuggling and enable jewellery owners to nurture their business and thereby create more jobs in the gold trade sector. The use of gold is intertwined with our cultural heritage. Gold is also an effective investment option. Government assistance is needed to strengthen the retail trade in gold. Reducing gold import duty would be a step in that direction
Q: The industry fears the government may decrease KYC on gold purchases below Rs 2 lakh. What is your take on the same? For purchases below Rs 2 lakh, the ordinary customers should opt out of KYC. But under the guise of this, the possibility of illegal gold sales should be prevented.