Gems and jewellery sector has earned a distinctive identity for itself by immensely contributing to the overall economic growth cycle. Besides posting a remarkable performance on the exports front, it has done exceedingly well on the domestic front also.

However, there are certain irritants, which calls for immediate fiscal attention of our policy makers. And the first policy measure that needs to be taken is to grant exemption from wealth tax on the individual possession of jewellery.

• Run-up to the Union Budget 2008-09

If one analyses, this industry is no exception to the fact that it has largely benefited thanks to the increase in the disposable incomes of public at large. India becoming a global hub has helped the fact that the disposable incomes are going to maintain its upward trends. Also India has become a major consumer base for all kinds of products. Our industry is no exception.

The problem remains that the consumers themselves want transactions in cash for various reasons, which restricts the sales and growth of the industry. The main reason, on analysis, was found to be the Wealth Tax payable on such transactions.

The resultant is that the consumers though having the ability and inclination to make purchases, shy away. They are very hesitant to complete the entire transaction and hence it is an opportunity lost out by the industry as a whole. The industry growth is affected due to no fault of theirs.

To overcome all of these, the industry has certain recommendations. It recommends that jewellery be totally exempt from wealth tax. On thorough analysis one can find that revenue collections from wealth taxes at one per cent above Rs 15 lakhs (Rs 1.5 million), are a miniscule portion of the entire revenue collections pie. However, as an industry we do realise that the exchequer cannot suffer due to any recommendations made.

The good part of this suggestion is that if the recommendation is accepted, there would be more and more people coming forward to buying jewellery which would increase the revenue by way of the VAT charged at one per cent on the sales.

The industry and the exchequer would be benefited by the sheer economies of scale.

Moreover, wealth tax is only on declared wealth and may remain stagnant. VAT on the other hand is directly proportional to the sales turnover. In the growing scenario, with the newer consumer base getting attracted to this industry, it would result in growth of revenue collections. This would also have a positive impact in reducing the now present illegal hoarding of jewellery. The industry would also become more & more disciplined, organised and transparent.

• Run-up to the Union Budget 2008-09

We think that if this recommendation is accepted, it would not only benefit revenue through VAT collections, but also help the government in its other major issue of employment.

Gems and jewellery industry as a whole is an extremely labour intensive industry. Thus, as volumes grow up, it definitely would help in generating large amount of skilled and semi skilled employment. This will fulfill the social objectives that the government has always focused on.

As per Sec. 10A & 10AA of Income Tax Act, 1961 goods sold within the SEZ area by one unit to other units is not considered as exports and these units are not eligible for the deduction under those sections.

Considering the fact that these sales are also treated as the export of goods under EXIM policy, we would recommend to bring both at par and consider inter unit sales within SEZ area as exports and be allowed exemption from tax.

We would also like to draw attention to Sec 115JB of the Income Tax Act, 1961 where existing units need to pay tax under MAT, while new units set up under SEZ are not required to pay the same.

Considering slow down in global economies, increasing costs in India and appreciating Indian rupee, we would recommend to grant exemption from MAT provisions to existing units as well and to bring them at par with new SEZ units.

Shreyas Doshi, MD, Shrenuj & Co Ltd