Finance Minister Arun Jaitley – A bull in jewellery shop


Preeti Sharma Menon

Ten days on, and with losses crossing Rs 60,000 crores, the jewellery industry on India continues to be on strike. 5 crore Indian daily wage earners are sitting without incomes. When I spoke to my friends from the media on why there is total silence on this issue, there was a typical response – oh the jewellery industry thrives on black money and they want to avoid tax, that’s all. No, that’s not all, in fact when I prodded deeper I realised that’s nowhere near it.

The jewellers have two issues – one they are unwilling to accept bringing their trade into the excise net, and second they have issues with the slab for Tax Collected at Source (TCS).

It’s not as if the jewellery industry does not pay taxes – most of the gold consumed in India is imported and gold traders pay custom duties; 900 tonnes of gold was imported in 2015. All traders pay VAT and they pay income tax.

So why do they object to 1% Excise? Why are they saying we are willing to pay, but increase custom duty by 1% but don’t introduce excise?

Excise Tax Furore

Excise Tax brings with it a scary Inspector Raj. Excise is usually applied on manufacturing concerns which produce materials in factories and then sell it in bulk. The jewellery industry in India is not like a systematic manufacturing industry, it is more like a cottage handicrafts industry where most karigars (craftsmen ) work from homes.

That the Excise Tax will be applicable only on those units that have 12 crore turnover, is rather misleading because a small jeweller may have a 12 crore turnover, but he is not running one smooth factory assembly line. He procures or gets made to order or adds values to the goods through a myriad of suppliers and karigars, each one of who will have to maintain the excise paperwork as they contribute to his turnover.

It is nearly impossible for small suppliers to comply with the paperwork. Most of these karigars are illiterate, they have low incomes. They can’t even afford to hire professionals to maintain the paperwork for every tiny job work, like say resizing a ring or fixing a fallen stone back.

Envision this..

Imagine that you gave a ring to be loosened. The jeweller will have to do paperwork on accepting that ring from you. Then he will give to a karigar. The jeweller will have to do paperwork with the karigar. The karigar will probably fix it in ten minutes. When he returns it to the jeweller, he will have to do fresh paperwork. The jeweller will then return it to you and again do paperwork. All this paperwork for a transaction probably worth 15 minutes and Rs.200 !

Since this transaction is part of the annual 12 crore turnover of the jeweller the paperwork is compulsory. Imagine how many such transactions are done by jewellers!

If there is a lapse in any of these Rs.200 worth transactions, then the excise inspectors can raid the jeweller and seal his business! What is the result going to be? Firstly the jewellers will avoid all small transactions which will harm you – the average customer.

Secondly, the jeweller will have to hire professionals to do the paperwork for which he won’t pay from his pocket and you – the average customer will foot the bill for the excise paperwork. Lastly, the jeweller who gets stuck in a raid, will be tempted to bribe his way through to stop his business from being seized and someone will have to pay for the bribe, no prizes for guessing that it will be you again – the average customer.

So Modi Sarkar’s introduction of excise serves the following 3 purposes – it makes jewellery more expensive for the common people, it makes 5 crore small karigars, many of them illiterate, run pillar to post to do paper work, and it opens a line for excise inspectors to enjoy the fruits of corruption.

I have two other issues. One, the government clearly seems to want to annihilate small time jewellers and keep the party going only for the big guys who run their own factories. Two, indirect taxes burden the smallest and poorest consumer. The poor farmer who has taken a loan to pay for his daughter’s wedding will foot this excise bill. When will our country change this lopsided revenue pattern where 65% comes from indirect taxes and only 35% come from direct taxes of the rich!

The TCS Embarrassment

If you eat in a restaurant where the average bill is say Rs.500, and you run a bill of Rs.50000, then the establishment has to seek your pan card and collect tax at source (TCS). Sounds fair – you are spending 100 times more than the average person, then you are a rare high-spending customer and you should be taxed.

As per our learned Finance Minster, since TCS is applicable for Rs.50,000 sale in a restaurant then Rs.200,000 sale in jewellery shop is okay. Don’t know how his logic works, or if it works at all.

A poor farmer saves for his daughter’s wedding, pays with cash and old gold and makes Rs.200,000 worth of bangles for his daughter. He is not a high roller Mr Finance Minister, he is the poorest of us. How will you collect his pan card and collect tax at source, he is not even an income tax payee!

Application of the rarest quality in India today – common sense – will tell you that Rs.50,000 would be an average spend in jewellery shop. If we were to extend the restaurant logic then 100 times of that is Rs. 5,000,000. A person buying jewellery worth half a crore is high spender for sure, likely to be income tax payee too. That’s whereabouts the cut off should be.

By making Rs.200,000 as a TCS cut off the Finance Minister will only achieve concealment of transactions and more black money. Or maybe he wants the poor farmer to stop buying jewelry and make it as preserve of rich Income tax payees only!

Both the excise tax and the TCS limit are injudicious schemes and show that there is a vacuum of economic acumen in the present government. There is crying need to revamp the jewellery business in order to increase transparency, but it cannot happen through slapdash taxes and random hit-and-run measures, it will need some serious economic reforms and policy planning. But wait! They did away with planning commissions too, didn’t they?

The author is an Aam Aadmi Party leader and AAP’s Mumbai-based  spokesperson