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Cut gold import duty, expand tax holiday, says Tara Jewels.


Date: 26-02-2015
Subject: Cut gold import duty, expand tax holiday, says Tara Jewels
The government of India needs to be complimented for doing away with the 80: 20 rule which stipulated that 20 per cent of the gold imported had to be exported. This is certainly welcome.

The industry still needs a few things moré from the government in the forthcoming Budget. It must do away with the 10 % import duty on gold which coupled with other export curbs led to an unorganized market for gold and led to a sharp fall in margins for organized players. This must be done in the interest of introducing a level playing field.

The government’s reasons for introducing this levy were understandable. India’s current account deficit (CAD) had touched 4.7 % of the GDP in 2012-13 and the currency had subsequently come under pressure. Things changed sharply in 2013-14 with the deficit falling to 1.7 % of the GDP and the currency too has stabilised. India is also considered to be a stable emerging market. Add to this the fact that global crude prices have fallen sharply meaning that the largest item in India’s import bill will come down sharply. This is on the domestic front.

On the export front too, the government needs to restore\\extend some tax benefits. To put matters in perspective, the Gems & Jewellery sector has traditionally been among the major contributors to the country’s export income. It is in the interest of India as a whole that exports from this sector is encouraged. India can only gain if earnings from this sector increase.

Since a majority of these units are located in export processing zones (EPZs) we are seeking the tax exemption on exports from EPZs should be extended to 20 years from the current 10 years. At present such units enjoy 100% Income Tax Exemption under Section 10AA of the Income Tax Act, 1961 for first 5 years, 50% for the next 5 years and for next 5 years 50% of the profit if such profit is reinvested to the SEZ units. Now the problem is that since exporters have little or no incentive after 10 years, some of them shut down operations leading to loss of foreign exchange. Also the margin on gems & jewellery exports is thin. Taxation tends to reduce these margins even more. If the tax exemption is extended or the tax done away entirely, then the money saved can be reinvested in the business.

There is also another problem with respect to SEZs. The original policy envisaged a complete tax holiday for 10 years. This policy was however altered and minimum alternate tax of 18.5 % levied Many companies which had made large investments on the premise of a 10 year tax exemption have now seen their profitability hit.

If the government announces these measures to boost exports and does away with the 10 % import duty on gold, then the industry’s cup of joy will be full.

Source : moneycontrol.com

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