Budget 2019: As the countdown for the presentation of the Union Budget for 2019-20 begins, the conversation on the economy is slowly converging to a singular theme - the need to kick-start the economic growth engine which has lost its steam towards the fag end of the foregone fiscal.
That the consensus is that the growth should be accompanied by jobs, that there is an urgent need to translate the aspirational reforms of the past into rewarding policies mindful of their execution (governance) part and there is an urgent need to realign the tax structure (including the import duty and tariff).
All these three points form the kernel of the pre-budget wish list of the industry associations and business leaders who seek to pitch in with ideas and suggestions to help the Finance Minister strike the right notes to make the forthcoming Union budget music to the ears of all. As a long term stakeholder in the gold trade, I too agree with these points for reasons that are specific to my industry as well as in the wider interest of the economy.
Gems and jewellery sector plays a significant role in the Indian economy, contributing to around 7% of the country's GDP and 15% of total merchandise exports. The segment employs over 4.64 million workers and is expected to add another 8.23 million by 2022.
It may be in order to note here that lion share of making or manufacturing of gold ornaments and diamond polishing (approximately 70%) happens in tiny, small and medium industry segment. These facts and figures amplify the importance of the segment and its vital role in stepping up economic growth accompanied by jobs as well as its critical importance in revving up small scale sector which is considered as an engine of growth, source of employment and powering manufacturing exports.
This takes me to the next point; the imperative to rationalise taxes as well as its tight-fisted implementation. It is no trade secret that the gold trade is not on a purple patch ever since the transformational Goods and Service Tax (GST) kicked in on July 1, 2017.
While one country, one tax is an idea whose time has come, the maze of taxation has left enough space for the unbridled and illegal shipment and sale of gold and gold ornaments in the domestic tariff area distorting prices and upsetting the plans of legally run businesses. Behind the envelope, estimates show that both single shop and large gold retail chains like us are losing business to the tune of 25% to 30% on the average per annum as the illegal trade is chipping into our business playing the price arbitrage card.
This is because such rogue businessmen and tax dodgers could sell gold ornaments at a discount of say 15% to 20% than the showroom price of law-abiding and tax compliant businesses. Though all India figures are not available, for the first time Kerala Finance Minister Thomas Isaac has reeled out some numbers on revenue loss to the exchequer stemming from tax evasion post-GST roll out recently in the state assembly.
According to him, while the tax revenue to state exchequer pre-GST (VAT) from the segment averaged Rs 638 crore per annum, it has tanked to an average of Rs 272 crore after the GST roll out. The numbers are indeed revealing and shocking.
Since taxes are real money, even assuming that the demand declined by say 10%, such a huge difference has only one explanation - large scale and orchestrated tax evasion. Therefore, there is an urgent need to step up the tax vigil so that tax compliance is brought to cent per cent leaving no room for illegal shipment and sale of gold in the domestic market.
Going by the revenue considerations and implications on CAD, it may not be feasible for the Finance Minister to slash the current 10% import duty on the yellow metal. But FM could do a lot on the GST side since it is still a work in progress. She can rationalise the GST structure which at the moment is applicable to both the supply of the good i.e. gold and on its service i.e. the manufacture of the gold jewellery.
On top of it comes the 10% import duty. This maze of tax structure is at the root of tax evasion. Therefore, my wise counsel for the finance minister is to tax only the final product since GST is quintessentially a value-added tax.
Such policy steps will not only put the gold trade on the purple patch but also help increase revenue, jobs and ultimately support growth. The Honourable Finance Minister may please consider these supplications while preparing the Union Budget for 2019-20.
(The author is Chairman, Malabar Gold & Diamonds)