Budget 2016 – Provision for excise on Gold
The Finance Minister proposed following in Budget 2016 with respect to Excise duty on Gold;
- Excise duty @ 1% will be applicable on gold will be applicable.This excise duty is applicable on new articles as well as articles made from melting old articles or old gold .In this case input tax credit is not allowed to be set off.
- Alternatively , excise is applicable @ 12.5% on gold.In such case , input tax credit can be reduced from tax liability.
- If SSI (Small Scale Industries) exemption is applicable to the gold jeweler , then excise will be required.
- The SSI exemption limit for jewelers is raised to Rs 6 crores and eligibility limit of Rs 12 crore. This was introduced to relieve the the small scale industries.
- Silver articles (which are not studded with gems) are exempt from excise duty .
- The jewelers are allowed voluntary centralized registration.So the jeweler can obtain only one registration for all the premises.
- Principal manufacturer is liable for payment of excise duty.Hence artisans who manufacture jewellery on job work basis.
- Minimum physical intervention is a new twist in the legislation.Central Excise Officers are directed to not to visit the jewelers premises.
- Registration procedure has been paced for speedy registration.This procedure won’t need physical verification for registration.
- Jewelers are not required to submit stock details to excise authorities.Authorities shall accept Vat records or records from the Bureau of Indian standards for excise purposes.
- One more facility afforded to jewelers is where they can pay excise on a monthly basis.
Strike by Jewelers
All India Gems and Jewellery Trade Federation, commented that the excise guidelines are impractical for implementation.The chairman further quoted that these guidelines will hamper the survival of industry.This was seen in action , where the jewelers called on strike in whole India.This strike almost extended to 2- 3 weeks.The main demand was to take back the excise duty on gold.
Why the strike
The jewelers took the stand which they said was in favour of the customers.Indirect tax like VAT (Value Added Tax) or excise duty , are generally passed on to the ultimate consumers.This adds up to the increase in price without any productive output or additional benefits to the consumer.Let me explain
Original cost of the article 100
Add : Excise @ 1% 1
Price Payable by customer 101
This Rupee 1 is collected by the producer and paid to the government.Hence it would mean that the manufacturer won’t be paying excise duty out of his pockets. So the consumers are forced to pay more just to reimburse the tax payment.
However , Gold price being higher per unit , excise will really add a burden on gold purchase.The Federation feared that more jewelers will have to shut down their shops. This situation , if actually turned true, would have horrific effects on the economy.
Action by the Government
The government ruled out the possibility of rolling back the excise duty on gold.Finance minister suggested that excised levy could be a step towards GST (Goods and Services Tax)implementation.Gold was totally out of the ambit of tax applicability.Hence , this could be baby step to bring gold into GST implementation process.
Primarily Government introduced following to counter effect the allegations
- No direct visits by Excise officials to the jeweler’s premises.This will ensure that there will be no Inspector Raaj.This step relieved the jewelers as they feared of harassment by the excise officials.
- The jewelers had argued that excise duty on jewelery will affect small time shops. This additional burden was feared to be the cause for shut down of the business. This was totally cleared out by the finance minister.He introduced a new change that SSI exemption shall be raised to Rs 6 crores as against 1.5 crores for other segments.Also eligibility threshold was increased to 12 crores as against 4 crores for other sectors.
- Payment of excise duty
Government said that excise duty on gold would be payable per month.For other cases or sectors , excise is payable for each clearance from the business premises.This would make it easier for the jewelers to pay excise duty.
Reasons behind excise levy
The Finance Minister advocated the move of bringing Gold and jewelery into excise scope.The reasons quoted are as below
- Huge volumes of gold traded in India would justify the levy.If such a high volume is traded , then at least part of it should be expected to generate revenues for the government.
- The Government would be able to check out for black money in gold trading.
- With the GST implementation ahead, this step can be seen as a small step for brignging gold in the tax net.
- Gold being demerit item , taxed at subsidy rates , would not be affected much.Main reason is that only 20% of the population demand for 80% of the gold.
Even though , Gold is considered demerit item ,it carries emotional attachment to the holder.Moreover , gold has been center of attraction in any festival or events or functions.This has shown that Gold has inelastic demand , which is not much affected by changes in external factors like taxes or so.