Wednesday, March 23, 2016

Was the Strike by the Jewellers in India Justified?

After the Hon’ble Finance Minister released the budget, the Jewellers in India had been on an almost 3 week strike which was called off only on Saturday 19th March 2016. There has been interspersed coverage on the new channels and opposition parties have been as usual quick to point out that the Ruling Government is wrong and that’s why Jewellers are On Strike. Over 3 lakh Jewellers from across India had kept their shops shut over the past 2-3 weeks as part of this protest.

Anyways, coming back to the question at hand, Was the Strike by the Jewellers Justified? That’s the question this article aims at answering…

Before we Begin: Just want to highlight that I have nothing against Jewellers. The views in this article are entirely mine and if you disagree with any of them, you can use the comments section to voice your opinion. If any of the Facts Quoted in this article are incorrect, pls highlight them so I can correct them as well.

The Background Info – What Triggered the Strike?

As part of the Budget, there were three main points that made the Jewellers of India unhappy:
  1. The Mandatory Quoting of PAN Number for all Jewellery Buy/Sell Transactions worth above Rs. 2 lakhs
  2. 1% additional Excise Duty on all Gold Imports
  3. Jewellers need to maintain Accurate Records of all Buy/Sell transactions on Gold and Diamonds hich can be inspected/audited by the Officials at any time

The WHY Behind these Rules

India is one of those Economies that still has a huge chunk of Blank Money that is concealed by the super wealthy and those that are outside of the Tax Net. By making PAN mandatory for all Jewellery purchases above 2 lakhs, individuals will be forced to divulge the same and get caught by the Tax Officials which will eventually be beneficial for the country.

Import of Gold is one of the largest contributors to the country’s Fiscal Deficit every year and governments in the past have been trying to reduce the fiscal deficit by making gold costlier to import. This is not the first time excise duty on Gold has been increased and will definitely not be the last. Increasing excise duty means lesser gold import which implies lower fiscal deficit.

Following up on the first point on PAN and Black Money, Jewellery industry has been a key player in the whole black money fiasco in our country because, hoarders of unaccounted wealth prefer to buy Gold and stash it away rather than keep plain old currencies. As long as there is no PAN required, they will just keep buying more gold and keep hiding their black wealth. By making PAN  mandatory, it makes it that much harder to conceal wealth. Of course you may challenge me by saying that people will find ingenious ways of hiding their wealth which I cannot deny but then again – if governments made it easy to conceal wealth that means, they are part of the problem isn’t it?

Now that we know why the rules were set up by the Government, let’s Review the Why the Sudden Strike part of the story – Shall We?

Quoting PAN – Made Mandatory:

The Quoting of PAN number has been in existence for a while now. So, you may be wondering why are Jewellers on strike now? The threshold up until Dec 2015 was 5 lakhs but starting Jan 1st 2016, the threshold has been brought down to 2 lakhs. So, any individual who purchases Jewellery above Rs. 2 lakhs would have to furnish a PAN Number with No Exceptions.

As you are aware, a majority of the Indian population still isn’t under the Tax Net and DO NOT have a PAN number. So, Jewellers are unable to sell to those customers even if they have the money. In the last 2-3 months, Jewellers have noticed a sizeable dip in sales because the folks who have the Money but don’t want to pay taxes on the same, are Unable to buy Jewellery so Sales is Down. It is reported that in some parts of India, sales is down by as much as 30% which is a big hit. Some Jewellers claim that customers refuse to provide PAN info and are even willing to abort the purchase transaction instead of providing their PAN info.

My Take: As part of the Salaried class whose every rupee in Income is taxed, my income is all “White” and have absolutely no issues in providing my PAN details because, even if tax officials investigate they can’t do anything because I am spending money that I have legally earned and lawfully tax paid.

If I don’t pay taxes but still have a lot of income and am afraid the Tax Officials will catch me, of course I will have issues providing my PAN info.

The 1% Additional Excise Duty

Am not really sure why this is an issue because this 1% excise duty is obviously going to be passed on to the end customer. Unless the Government forced Jewellers to actually  bear the 1% extra excise duty there is not going to be much impact on the Jewellers because like the previous times when the excise duty was increased, they are just going to pass on the burden to the consumer who is buying the gold. 

The Accurate Record Keeping

Ok, now we are coming to the real crux of the “REASON” for the Strike. The Jewellers are claiming that it’s very hard for them to keep accurate records of all buy/sell transactions and if the officials from customs or excise department start showing up in their shops and demand to see the records? It’s just going to be like Inspector Raj where officials wield all the power and can shut down the shop at their will and wish. This can lead to a lot of bribery & corruption and not to mention a terrible inconvenience for them.

At the outset this may sound like a valid reason for protest but some industry & financial experts suspect that there is a lot more than fear of Inspector Raj.

With the chance of Audit, Jewellers would now be required to keep log of all the gold they buy and tally the same with all the gold they sell. This might sound straight forward on paper but as you may have read in books or seen in movies, Smuggling Gold is still a big deal across the globe. And almost all of that smuggled gold ends up in Jewellery Shops. With nobody auditing their purchase & sales numbers, its pretty easy for them to sneak in a few pounds of smuggled yellow metal and sell the same. If the numbers have to tally, that’s a problem – right? 

Also, there is a lot of Wastage charged by Jewellers even for simple pieces of Jewellery. Their claim is that a certain % of gold gets wasted when Artisans craft the Gold Jewellery. However, some people suggest that this gold actually gets reused by Jewellers when they make further Jewels and if they have to tally the numbers with regards to purchase of Gold Bullion and Jewellery sold, this whole area where they make money will be exposed.

Some Last Words:

I am not a Jeweller and the info above is based on what I hear from people who know the nuances of the trade. The gripe about a possible Inspector Raj could have been legit and after assurances from the Government the traders have resumed their business.

In my personal opinion, the steps by the government are welcome in helping curb both black money as well as the fiscal deficit. So, lets hope for the best…


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