From Business World of 8 March 2005.
Disturbing
signals
When I read about jewellers’ strikes
against the new 2 per cent tax on branded jewellery, my first thought was, what
do you expect from them? Of course they would want to evade taxes. But there
was something I could not understand. The vast majority of jewelers do not
produce branded jewellery. They just craft jewellery and sell it; their
customers buy it for the look, not because it is called Karishma or Asmita or
some such nonsense. Why are they so het up about a tax that somebody else is
going to have to pay?
So I made some
enquiries; and this is what I found. This tax on branded jewellery is really
targeting De Beers. De Beers is the world’s biggest producer of raw gems; India
is one of its biggest markets. But in recent years its monopoly has been eroded
by gems coming from Australians. The Australians also see India’s huge market.
They know Golconda was once the world’s premier source of diamonds; they want
to come and prospect it again with modern technology.
This got De
Beers worried. So they have set up a number of brands for sale in India, and
are advertising them with such powerful models as Maharani Gayatri Devi and
some Bollywood actresses. That got some home-grown jewelers worried; and what
better way of settling the goose of these foreigners but to enlist the
formidable finance minister? So they went and persuaded him – or let us say,
someone in the ministry who could persuade him – to put this 2 per cent tax.
That the tax would hit Tanishq, Titan’s home-grown brand, is a bonus for its
competitors, actual and potential.
But then, many
jewelers also see branding as a useful weapon against these big boys. After
all, what could be easier than to give your jewellery some silly name like
Akanksha, put it in fancy boxes and sell it? Some people may be fooled; they
may think that it is something exclusive, and may pay a few thousand Rupees
more per carat. It is these small guys aspiring to get big who are upset with
this tax; and they are quite numerous.
But why should they
be bothered about a mere 2 per cent tax? It is not the 2 per cent that bothers
them; it is the excise guys. They have long experience of those excise fellows;
and all of it was unpleasant. For those were the fellows that administered gold
control for 50 years; and a more corrupt lot of people was difficult to find.
People are beginning to forget; but gold imports were banned from the time
World War II broke out in 1939 till Manmohan Singh brought in the 5-kilo scheme
in 1993. Throughout that period, India was the world’s biggest importer of
gold; no one in India ever experienced a shortage of gold.
That was the
achievement of those gold control guys; they ensured that gold control was
smoothly sabotaged – for a price. When the explosives used in the 1992 Bombay
bomb blasts were traced, it was found that a customs official had allowed them
to be smuggled in for the bribe normally levied on smuggled gold. And the money
was not only made on smuggling. Every once in a while, the excise fellows
raided some hapless jeweler, accused him of holding smuggled gold and shake him
down. The jewelers remember the tribulations of gold control days only too
well, and do not want to get into the clutches of the excise fellows again.
Don’t make a
mistake; these jewelers are not saying they should not be taxed. They are
saying, tax us, but through someone else. For instance, place a tax on imports
of roughs. Since all jewelers have to use them, they will be automatically
taxed. But they will not have to come in contact with those hated excise guys
to pay that tax; those sight-holders in Bombay will have to do that. That is
all right with the rest of the jewelers.
The funny thing
is, there was an import duty on roughs; it was removed only last year. Why?
That was because most of the roughs were being imported for being cut and
re-exported; at that point, they got a duty drawback. It was silly to first tax
them and then to give back the tax. The government did not even bother to do
that; it allowed duty-free imports under advance licensing. To encourage these
exports and cut the red tape, the finance minister abolished the import duty.
That was
eminently sensible. And then – the same finance minister comes up with this
tiny duty with the maximum nuisance value. That is really high-minded; he is
not interested in the revenue, he is only interested in making the lives of
jewelers miserable.
