India's gold, gem workers say taxes tarnish business

India's new sales tax would hurt the gem industry most, said spokesmen in the trade, who vow to continue the strike until the tax is lifted.

NEW DELHI // For the past two weeks, India's gold and gemsmiths have refused to pick up their tools in protest against the tax hike on the precious metal and jewellery.

Shops, jewellery makers and traders have shut down, paralysing the market and sending brides into a panic ahead of the peak wedding season this month.

The strike began on March 17 to protest against a doubling of the import duty on gold to 4 per cent, a move set out in the government's budget plan for the coming year, which starts this month.

It would be the second time the duty would increase in the past year. The sales tax on gold jewellery also more than doubles to 1 per cent.

The new sales tax would hurt the industry most, said spokesmen in the trade, who vow to continue the strike until the tax is lifted.

"We, as a council, think the levies are on the higher side," said Kewal Krishan Duggal, director of the Delhi branch of the Gem and Jewellery Export Promotion Council, one of India's largest industry activist organisation.

He said smaller businesses that produce handmade items, called unbranded jewellery, would be hit particularly hard.

"We want the government to reconsider the excise but, more than that, there should be a rollback on the tax on unbranded jewellery because that is affecting smaller businesses," said Mr Duggal.

He added that small jewellery shops were already struggling because of the rising price of gold, and could ill afford the blow to their business.

In the past decade, gold prices have surged by nearly 20 per cent each year on average. Last month, an ounce of gold was worth more than US$1,600 (Dh5,877).

India is the world's biggest consumer of gold, with many families purchasing it as an investment.

It is an integral part of celebrations, especially weddings, where the metal represents the wealth of the bride's family. Every year Indians buy about 900 tonnes of gold.

The Indian finance minister, Pranab Mukherjee, hopes the new taxes will dull the country's insatiable appetite for gold, which accounts for more than 80 per cent of India's US$56 billion (Dh205bn) trade deficit.

Gold is purchased on the international market in dollars, further weakening the Indian currency, said Mr Mukherjee.

Jewellers argue that the government's policies could backfire and fuel the black market trade in gold bullion.

"Government has a good point here," said Mr Duggal. "But it could lead to smuggling because when the duty is high, it becomes attractive to try to bring gold into the country under the radar. If the duty is low, then people are not interested."

About 300,000 people work in the gold and gem industry in India. Most of the jewellery is unbranded - handmade by artisans who work on a contract basis.

"Once there is stoppage in trade, it turns into a vicious cycle," said Mr Duggal. "There are cumulative long-term effects when artisans leave for their villages because there is no work in the cities. It is very difficult to get them back. [An artisan] may switch jobs and become a driver and we lose a valuable worker."

The government has begun to bow to the demands of the jewellers. On Wednesday, Mr Mukherjee agreed to reconsider the tax on unbranded jewellery but he made it clear that there would be no change to the increase on import duties.

The strike, set to end a week ago, has gathered momentum as smaller traders have joined the protest.

"There are assurances from the government, but no solid answers. The jewellers are not happy," said Rakesh Saraf, the head of the Karol Bagh Jewellers Association in New Delhi.

In Karol Bagh, one of Delhi's oldest shopping areas, which has an entire street dedicated to bridal jewellery, shops remained closed over the weekend.

"The diamond market is also affected," said Mr Saraf. "Diamond and gold artisans work closely together here in this market.

"The diamond market has also come to a standstill and they are all sitting idle."

The new levies require Indians to register their PAN (personal account number) card for any gold purchase more than 200,000 rupees (Dh14,400), which would buy about 50 grams of gold.

The government's income tax department can then track the purchases for tax purposes.

Mr Duggal said this could send sales plunging further.

"That is not even a full necklace set," said Mr Duggal, referring to a necklace and a set of earrings. "That is the minimum a family gives their daughter for a wedding. Why will people buy that and be taxed when they can spend 10 times that amount on a luxury car or watch and not have to pay taxes?"