Oct 19, 2016

GJEPC Seeks GST Exemption for Exports, Optimal 1.25% GST Rate for Domestic Transactions

The Gem & Jewellery Export Promotion Council (GJEPC) has made a representation to the government urging it to ensure that the export sector is exempted from the proposed new GST regime and that the domestic sector is taxed at a minimal rate of between 0 - 1.25% on different products.

The representation, made on the eve of a crucial meeting of the GST Council, stresses that continued tax-exemption will help the industry maintain its global competitiveness and leading position in the world, while a minimal GST rate of 1.25% on domestic jewellery sales would be tax-revenue neutral for the government and encourage greater transparency and tax compliance within the industry.

The highlights of the submission were presented at a press briefing by GJEPC Chairman Praveenshankar Pandya, Diamond Panel Convener, Sanjay Shah and Executive Director, Sabyasachi Ray.

Pandya stressed that the Council and the industry were completely supportive of India’s move towards Goods & Services Tax (GST) regime. “It is the right way to go,” he said, adding that the implementation of the new tax system has to take into consideration that the industry comprises different segments, and there should be no uniform across the board tax structure.

Citing the manner in which the Excise duty has finally been implemented, after the intial controversy earlier this year, Pandya said this is the perfect yardstick that should be followed under the GST regime as well. “After extensive interaction between the government and the industry, which GJEPC helped facilitate, the government took a very pragmatic approach in actual implementation of the levy,” Pandya said, while asking that the same logic should be followed for the GST structure as well.

He also stressed that the industry was a key contributor to development across the country and that the government should take this into account while developing the new tax regime. “The industry is a huge contributor to foreign exchange earnings, and accounts for 14% of the India’s merchandise exports,” Pandya said. “It totally contributes 6% to 7% to India’s GDP and provides direct employment to nearly 4.6 million of skilled & unskilled workers, offers seasonal employment opportunities to people engaged in agriculture and is one of the largest employers of women at various points across manufacturing, distribution and retailing,” he elaborated.

The sector has also been selected as a thrust area for exports, Pandya said, explaining that the GJEPC’s representation was aimed at ensuring that the industry’s contribution to the economy would increase under the new GST regime.

He pointed out that the Council had undertaken an extensive consultation across the industry while preparing these recommendations – the membership base of over 7,000 exporters was consulted and larger meetings were held across the different regions of the country to solicit opinions from other members of the trade. Further, he said, all these inputs were collated by a central team, and analyzed by industry and taxation experts while preparing the final proposal.

The GJEPC’s representation to the GST Council makes the following suggestions:

  • All raw materials (such as rough and polished diamonds and coloured gemstones), as well as inputs and input services that contribute to exports should be GST exempt i.e. 0%
  • Gold, silver and platinum may be taxed at 1.25% under GST (however, gold procured from nominated agencies for purpose of use in exports should continue to be exempted in line with  the existing framework)
  • Gold / Silver / Platinum Jewellery (including studded jewellery and costume fashion jewellery) may be taxed at 1.25% under GST

Explaining the rationale, Pandya pointed out that 93% of diamonds manufactured in India are exported (as per the latest De Beers study, 7% are consumed in India). Similarly, the bulk of coloured gemstones like emerald and tanzanite are also exported. Hence any tax on these raw materials would affect exports, and eventually affect India’s leading position in these sectors globally.

He also pointed out that jewellery sales in India currently attract a 1% VAT and experience has shown that higher rates actually encourage smuggling and evasion and affect revenue. Further, the new excise duty is applicable only if the taxable turnover of the assessee is in excess of Rs. 10 crore, and that only 25% of businesses come under the tax net. Based on this, GJEPC in consultation with tax experts, have recommended a 1.25% GST rate to ensure that industry contribution to tax revenue does not drop.

Addressing a common misconception, Pandya said that it is a fallacy that jewellery is a luxury good. “Most Indian households, even in the lower economic strata, have at least some gold or silver ornaments,” he pointed out. In India, he explained, jewellery plays many roles other than as a luxury adornment – as a liquid investment that can be easily traded during emergencies; as a store of value for small and medium farmers during good seasons to help when crops fail; as Streedhan, which gives wealth in the hands of women and helps in empowerment and so on. 

Summing up, he pointed out that India’s major global competitors all have low tax regimes and existing tax exemption benefits should be maintained to ensure that the Indian export industry continues to flourish. Further, a pragmatic domestic tax structure, would encourage the modern, organised sector which is committed to transparency and making its contribution to the Indian economy.

Pic Caption: Praveenshankar Pandya addressing the media, flanked by Sanjay Shah and Sabyasachi Ray