27 May 2016

Hallmarking rule on cards to ensure quality

Jewellery buyers in the country would now be sure of the purity of gold and silver used in the ornaments they buy, as hallmarking could soon be compulsory.

The government had passed the Bureau of Indian Standards (BIS) Act, 2016, on March 21 this year. The new rule is yet to be implemented, but market players expect hallmarking to become mandatory by Diwali. This Act makes it mandatory that all precious metal jewellery and articles sold in India are hallmarked according to the defined standards. This is a game-changing move that will bring significant benefits for customers and make the industry more accountable and transparent.

It has been an age-old experience of Indian gold consumers that they have usually ended up getting low purity jewellery than what they paid for.

With the new law cleared by both Houses of Parliament in March; all gold, silver and platinum jewellery would have a BIS-certified quality. Coins and bars would also have to be hallmarked.

China, incidentally, implemented mandatory hallmarking of jewellery from this month.

However, there would be implementation challenges also. Tanya Rastogi, director, Lala Jugal Kishore Jewellers, said: "For those not doing hallmarking, the cost would go up by one per cent." At present, hallmarked gold jewellery is costlier by around Rs 500 per 12g piece than one which is not. In silver, 95-purity hallmarked jewellery (considered the best quality) is sold at a mark-up of 25-30 per cent compared to the non-hallmarked variety. The question is who will foot the additional bill.

Gold jewellery hallmarking began in 2001 and of silver jewellery in 2005. However, it was not mandatory.

At present, there are only 375 BIS-certified assaying and hallmarking (A&H) centres in the country. Rastogi says, "There is an implementation challenge. We need at least 5,000 hallmarking centres and this is the biggest problem. Small towns don't have the centres and carrying jewellery to bigger towns (for hallmarking) would involve a lot of risk." He recommends the government take some initiative in this regard.

Sudheesh Nambiath, lead analyst for precious metals at GFMS Thomson Reuters, adds: "It is very unlikely that the hallmarking scheme will be rolled out nationwide at one go. It will likely be a phase-by-phase implementation." GFMS estimates half of jewellery produced is hallmarked at present.

The other key question is whether the existing hallmarking centres are capable of handling the additional business. Some believe they are. K Anand Kumar, secretary, Indian Association of Hallmarking Centres, says: "The existing capacity is enough."

He, however, clarifies that after the rule is implemented, such centres can hallmark only 14 (585 purity, used mainly for exports), 18 (750 purity, for diamond studded jewellery) and 22 (916 purity, used for jewellery making) carat jewellery.

Coins and bars of gold, as well as 24-carat gold, will be hallmarked by BIS-certified refineries and these products will contain the BIS mark and refinery code number. So far, the demand for hallmarked coins has been met through import. It will be the first time that domestically hallmarked coins will be introduced.

While it is still unclear on how and when the scheme will be implemented and who will pay the new costs, Sudheesh sums up on a positive note. He says, "The Act finally makes room for the much-awaited 'Indian Standard' gold, certified by BIS. The current trade practice is to import one kg of LBMA (London Bullion Market Association) or DGD (of the Dubai Multi Commodities Centre-accredited gold bars. This (new move) could be another important step towards making the Gold Monetisation Scheme acceptable to banks, due to the standardisation of gold bars."

  • Hallmarking for gold jewellery was first introduced in India in 2001 and for silver jewellery in 2005
  • GFMS data show only half of the jewellery is being hallmarked at present
  • Mandatory hallmarking will cover all precious metals, coins and bars of gold
  • Implementation likely before Diwali but in phases
  • Low number of hallmarking centre seen as an implementation challenge

Source: http://www.business-standard.com/article/markets/hallmarking-rule-on-cards-to-ensure-quality-116052300017_1.html

New tax regime to hit 40% of India's jewellery sales

Around 40 per cent of India’s jewellery sales are likely to get affected with the implementation of tax collection at source (TCS) effective June 1 along with requirement to submit Permanent Account Number (PAN). Earlier this year, the government had levied a one per cent of TCS on cash transaction worth Rs 2 lakh and above in all financial instruments including luxury items such as jewellery, to curb black money from the system.

The guidelines include part-payment of the entire transaction as cash. This means, if a customer buys precious ornaments worth Rs 5 lakh and pays Rs 4.5 lakh through cheque and Rs 50,000 by cash, he would have to pay one per cent TCS on the entire transaction. TCS is also levied on jewellery and bullion sales of Rs 2 lakh and above.

Feeling the heat, jewellers have almost stopped stocking high-end jewellery worth Rs 2 lakh and above with gold content of 70-80 grams. Sale of such ornaments would be executed only through advance orders. In case of diamond jewellery, the sale of ornaments with gold content of 20-30 grams would be difficult. Customised niche jewellery such as Jadau, Awadhi etc would face huge problems to find buyers.

“TCS alone would reduce the entire segment of business with jewellery worth Rs 2 lakh. This segment consists of nearly 40 per cent of the entire jewellery sales, which would get affected badly,” said a senior official with the India Bullion and Jewellers Association.

The worst part of the TCS is the fear, which the government has tried to create among jewellery buyers.  The government has directed jewellers and bullion dealers to pay TCS on a monthly basis and compile the data base along with the PAN of customers who buy jewellery worth Rs 2 lakh and above. This data base is to be submitted to tax authorities on an annual basis. “Jewellers’ sales volume would be impacted badly on switching of customers to light-weight jewellery to avoid tax glare,” said Mehul Choksi, managing director of Gitanjali Gems, for which jewellery worth Rs 2 lakh and above constitutes 30 per cent of its total sales.

“Sentiment is very weak for the entire jewellery sector with so much of negative publicity. With this new levy, customers would think twice before buying jewellery worth Rs 2 lakh,” said Dilip Lagu, director, Lagu Bandhu Jewellers.

According to World Gold Council (WGC), India’s gold demand declined 39 per cent to 116.5 tonnes during the January-March 2016 quarter against 191.7 tonnes in the year-ago period.

“The industry is facing challenging times; a vision detailing its future role in the economy and a stable policy framework is needed to allow this entrepreneur-driven, employment-intensive industry to channel its energies towards higher value creation,” said Somasundaram P R, managing director (India) at WGC. 

Source: http://www.business-standard.com/article/markets/new-tax-regime-to-hit-40-of-india-s-jewellery-sales-116052000956_1.html