As the 2024-25 Budget presentation by Finance Minister Nirmala Sitharaman approaches on July 23, the jewellery industry is eagerly anticipating potential duty cuts on gold, silver, diamonds, and platinum. This expectation is particularly significant as it aligns with the wedding and festival season, traditionally a period of high demand for jewellery.
Complex Duty Structure
The Secretary of the India Bullion and Jewellers Association (IBJA) highlighted several complexities and inefficiencies in the current duty structure. Varying duty rates on gold and silver imports from different countries create market distortions. For instance, under the Comprehensive Economic Partnership Agreement (CEPA) with the UAE, the duties on gold and silver differ from those imposed on imports from least developed countries or on London Bullion Market Association (LBMA) certified products.
"In case of silver, the duty under the CEPA agreement is only 8%, but duty when imported from the LBMA is 15%. We believe this discrepancy needs to be addressed. A reduction in duty by 2-3%, or even 5%, for both gold and silver could significantly benefit jewellery companies," he stated.
Potential Benefits of Duty Cuts
A reduction in duties could level the playing field among jewellers and bullion dealers and enhance price discovery in the India International Bullion Exchange. It would also potentially lower the costs for consumers during a peak purchasing period.
Calls for Taxation Policy Changes
The IBJA Secretary also pointed out the need for changes in the taxation policy. He suggested reducing the income tax on interest from sovereign gold bonds to incentivize investments, especially for senior citizens, noting that the current 2.5% interest rate is relatively low. Additionally, he advocated for the removal of capital gains tax on the sale of gold and jewellery.
"India has a significant amount of household gold, estimated between 25,000 to 30,000 tonnes, which remains untapped due to tax implications. Eliminating this tax could reduce the need for gold imports, thereby saving substantial foreign exchange," he explained.
Streamlining Regulatory Oversight
The jewellery industry also faces challenges due to the involvement of multiple regulators, including the Reserve Bank of India (RBI), the Commerce Ministry, the Finance Ministry, and others. The IBJA Secretary believes that having a single regulator, such as the India International Financial Services Centre Authority (IFSCA), could streamline processes and provide more consistent and effective regulation.
He praised the IFSCA's performance, suggesting that consolidating regulatory authority under this body could significantly benefit the industry.
Conclusion
As the jewellery industry awaits the 2024-25 Budget announcement, the potential duty cuts on precious metals and the proposed changes in taxation and regulatory policies are seen as crucial steps towards reducing market distortions, enhancing price discovery, and boosting the sector's growth. With the wedding and festival season on the horizon, these measures could bring substantial benefits to jewellers, bullion dealers, and consumers alike.
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