The Hindu Business Line : When imitation is precious

The Finance Minister, Mr Pranab Mukherjee, should be complimented for hiking the Customs duty on imported gold and silver. It was an overdue fiscal measure and should bring considerable revenue for the exchequer, given the country’s large import and high prices of the two precious metals in the international market. No doubt, import volumes have shrunk in recent months because demand here is highly price elastic. Yet surely, a small increase of Rs 100 per 10 grams of gold is most unlikely to hurt consumers and jewellery makers. So, any objection is unjustified and unsustainable.

However, another provision in the Budget may fail to meet the basic tenets of taxation — that it should be just, reasonable, equitable and non-discriminatory. The Finance Minister has proposed the withdrawal of 2 per cent excise duty on branded jewellery, in vogue since 2004. Nothing wrong with that per se; but what is unfair is the continuance of 4 per cent excise duty on imitation jewellery. It is common knowledge that branded and imitation jewellery are at opposite ends of the market and price spectrum. While the former, made of precious metals like gold and platinum and usually studded with diamonds and gems, are high-priced, premium-category, ornamental products affordable only to the rich, imitation jewellery are low- or modestly-priced products fancied by the less-affluent, the poor and the middle-class. They are generally labour intensive products of cottage or small-scale units (over 5,000 units operate across the country) and provide livelihood to several lakh families. Mr Mukherjee has deemed it appropriate to sacrifice revenue by letting premium products go out of the tax net, but has continued the tax burden on low-priced products which have a rather limited revenue generation potential. Given the geographic dispersal of units and small size, it is likely that the cost of tax recovery may well exceed the actual revenue collected. Ex-facie excise duty on imitation jewellery is discriminatory and lacks equity. Additionally, imitation jewellery makers face tough competition from cheap products of Chinese origin. Despite a stiff customs duty of 27.5 per cent on imported Chinese goods, domestic manufacturers allege invoice manipulation on such imports.

In matters of taxation, it may be appropriate to follow ‘what the traffic can bear’ principle. By that logic, excise duty on branded jewellery deserves to be reinstated; but the tax on imitation jewellery must go because of its adverse socio-economic implications. Importantly, the Government must take steps to improve the working conditions of small artisans and goldsmiths. Providing low cost health insurance is one of them. Training youngsters in the traditional art of making handcrafted jewellery will help create employment opportunities for many.

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