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Split In Indian Jewellers Strike

March 22nd, 2016 by

A nationwide jewellers strike in India has come to an uncertain end after trade association representatives met with the Finance Minister regarding a new 1% excise tax on non-silver jewellry. More than 300,000 jewellers closed shop on March 2, after news of the new tax was made public. However, jewellers in New Delhi, Mumbai, Jaipur, and Uttar Pradesh are continuing the strike until they have a revocation of the excise tax in writing.

Estimates of business losses from the strike range from Rs 18,000 crore to as high as Rs 25,000 crore ($3.74 billion.) The jewellry industry in India provides 3.5% of GDP, is valued at Rs 31.5 lakh crore ($47.5 billion,) and employees 4.5 million people.

Gold Man vs Tax Man

This isn’t the first time jewellers in India have struck over taxes. The same 1% excise tax was levied in 2012, but the government backed down. This time, the bite is worse, as jewellry demand has fallen due to high prices and a perception by the public that the government would reduce the import duty on gold. Some jewellers have had to slash prices as much as $53 an ounce to move inventory. The Finance Ministry surprised the public when it not only did not reduce the import tax, but introduced the 1% excise tax.

Excise Taxes vs Sales Taxes

taxesAn excise tax places a greater burden on businesses than a sales tax does. While the consumer pays a sales tax at the time of purchase, manufacturers have to pay the excise tax when the item is produced, then try to get the money back by raising prices. For an industry like jewellry, it may be weeks before a particular items sells, meaning that much less working capital for the business. This is especially burdensome to the vast number of small artisan jewellers, who will be limited in the amount of product they can have on hand at any one time.

What Was Won?

India-necklaceLeaders of the major jewellry trade associations called off the strike on assurances that there will be no “inspector raj” (harassment by tax officials) while a task force is formed to discuss the excise tax. The task force, headed by former chief economic advisor Ashok Lajiri, will be composed of tax officials, one legal expert, and three industry representatives.Their report will be due in 60 days.

However, jewellry stores are still expected to register with the authorities for the purpose of the excise tax, which is still in effect. Taxes will still be due dating from March 1, but can be paid along with April’s taxes. In addition, all transactions over Rs 2 lakh (approximately $3000) will have to be reported to the government, along with the buyer’s PAN (tax ID number.)

Deeds, Not Words

The holdouts in the jewellers strike want to see something besides promises from the government before they return to work. Most shops in New Delhi remained closed, and vow to stay closed until the 1% excise tax is actually rolled back. Jewellers and bullion traders are organizing a dharna (hunger strike) at one of India’s oldest and largest marketplaces, the Chandni Chowk, to call attention to their struggle. It remains to be seen if they can convince the government to change its plans, given that most of the major trade associations have given up the jewellers strike.

india-goldUttar Pradesh, India’s fourth-largest state, is a hotbed for holdouts. IBN Live quotes Uttar Pradesh Jewellers Association president Mahesh Chandra Jain as saying that five lakh (500,000) jewellers will remain closed through the holiday of Holi to protest the excise tax. “Thousands of wholesale and retail markets are closed and traders are continuing their protest,” he said Noting that workers and small scale traders have “the crisis of bread and butter now,” he said demonstrations are planned at the homes of state and national legislators.

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