Gems, jewellery traders oppose 2% MAT, TDS at supply point

The All-India Gems and Jewellery Federation (AIGJM), the apex gems and jewellery industry body, has opposed the provisions of 2% minimum alternative tax (MAT) and tax deduction at source (TDS) at the supply point proposed in the new Direct Tax Code. The federation is also opposed to the proposal of vesting the power of seizing all stock in trade with the raiding officer, which under the 46-year-old direct tax law has not been permissible.

Bachraj Bamalwa, vice-chairman of AIGJM, addressing a press conference on Thursday said such provisions will have a cascading effect on the Rs 1,12,000 crore Indian gems and jewellery market with the government virtually trying to confiscate traders? working capital.

Bamalwa said the government with the proposal of 10% TDS at the supply point would virtually block Rs 10,000 crore by way of advance taxes and it would be similar to taxing capital without considering the income from it.

?One kilo of gold currently costs around Rs 17 lakh, on which the supplier has a profit of around Rs 4,000. Paying 10% TDS at the supply source means he would have to pay Rs 1.70 lakh to the government at the time of transaction,? Bamalwa said.

Over and above the 10% TDS, the 2% MAT on gross assets would be another blow to the gems and jewellery traders.

According to Bamalwa, since the industry operates on a small margin with high inventory levels, a 2% MAT on gross assets (jewellery made for delivery and raw materials would also be considered as assets) would eat into the profits of the traders. Besides, a 2% fixed MAT rate would be discriminatory because traders who earns 2% profit and also traders who earn 10% profit will have to pay the same amount of MAT.

The provision of allowing raiding officers to seize stock in trade would once again give room to inspector raj, which would put evils like bribery on a rise, he pointed out. ?Seizure of stock in trade will result into disruption of business activities, in manufacturing, wholesale and retail, and both traders and consumers will be put to difficulties,? Bamalwa said.

He said the industry highly depends on banks and financial institutions for working capital and seizure of assets would leave traders with no collateral security arrangements for bank loans, Bamalwa said.

The AIGJM has already made a presentation to the finance ministry a fortnight ago, he added.