Threatening to go on a strike, jewellers have opposed the government's proposal to mandate the need for producing PAN cards while buying gold worth more than Rs 1 lakh.
In an interview with CNBC-TV18, Titan MD Bhaskar Bhat said that the law may spook genuine buyers of gold -- such as womenfolk in the rural sector -- as many may not have a PAN card or may be afraid to produce one.
Bhat, whose company operates the popular Tanishq chain, said jewellers had approached the government to request it to ease the proposal but hadn't heard from it.
Tanishq's average ticket size for gold sales stood at Rs 60,000-65,000, Bhat added.
Below is the verbatim transcript of Bhaskar Bhat's interview with CNBC-TV18's Menaka Doshi and Anuj Singhal.
Menaka: I am going to start by asking you to give us a sense of at least Titan, what is the percent of sales where the transaction size is Rs 1 lakh and more and therefore in that sense what quantum of business could likely get impacted by this move?
A: I must tell you that the existing threshold which is Rs 5 lakh plus was already imposed some time back and a fairly large percent, nearly 50 percent in the above Rs 1 lakh there are people buying in cash and that is not because I wouldn't call all of it or any of it as unaccounted money because the product category appeals to women and at least in Tanishq and Goldplus and Zoya, three brands we appeal because of the design, brand name and is less bought for investment and therefore it is women who want to adorn themselves who buy and many of them don't have Permanent Account Number (PAN) cards and they accumulate money either through golden harvest scheme which we used to have and now it is in another form.
So the problem is really we have 170 million PAN cards in this country and only 30 million income tax payers and there are a lot of fraudulent PAN cards, lot of people without PAN card and unfortunately the perception of income tax and PAN cards is one of fear that if I reveal my identity to income tax I am likely to be harassed so on and so forth. It is unfortunate and that image has to change.
Be that as it may, the government's intention is laudable and nobody should even question that this black economy and unaccounted money is causing a lot of problems but it affects millions of consumers and keeping them out of the industry because they won't be able to produce PAN card and either they will go to people who will still manage their transaction without accepting a PAN card or they will get out of the industry. So who does it affect, it affects the consumer or the producer of that goods which is a poor artisan who is making that jewellery.
So, we fear that this will affect people who are not genuinely having unaccounted money. Where you need to hit is really at the larger transaction with really in the bigger Rs 10 lakh plus transaction where really you can't say that I don't have a PAN card.
Menaka: I have some operational questions here and I am not trying to suggest simplistic measure to alleviate the pain that you have just detailed but how many women in this country really make jewellery purchases of one lakh and above without in some sense some member of the family being involved in that decision, so is it not possible for them to offer their husband's pan card? Does the Budget provision allow for that in that sense? I am just trying to understand the operational aspect of this.
A: No there is no question about it. 70 percent of the purchase is still in rural India and there whether even the husband has a PAN card we don't know but in 70 percent of the cases it is the husband's PAN card which is used. Fairly large number of women accumulate money and some of them are collecting gold for their daughter's marriage and so on and so forth and it is money stashed away every month - sometimes perhaps without the knowledge of the husband. Then they would come and buy from the jeweller and keep it safely and so on. It is a small part, it is not like 100 percent but you are right, it is not that the whole market women don't have PAN card. They have access to a PAN card, however, the first point which was about perception is where the problem is sitting.
Menaka: Do you expect that this will push sales to the smaller jewellery stores which might in fact turn a blind eye to this pan card provision and continue to sell in cash?
A: Unlikely, because you still want to buy jewellery from a trusted source and over the last few years several large companies have begun to project themselves as — so that consumer confidence has grown. Large players have come and purity has improved and so on and so forth so the small jeweller unless he is very skilled at some particular kind of craft, those will not really be able to service the large numbers of consumers. So, that is not the point, there will be a drift towards — the problem will be with jewellers really who will cut corners and will permit one lakh bill being broken into Rs 50,000 and Rs 50,000 into two bills and two dates and so on and so forth which is happening today at Rs 5 lakh. If you are buying a Rs 7 lakh piece you an get two bills of Rs 4 lakh and Rs 3 lakh and therefore get away without showing your pan card. But at one lakh it is really going to be really difficult to break a Rs 10 lakh bill into eleven Rs 90,000 bills, but it is not likely that people will drift towards small jewellers.
Menaka: But especially if you cannot offer bill breaking down, if I may call it that informally, at Titan and others can, so if we are making a purchase of Rs two lakhs and Rs three lakhs and you can get that purchase in three bills thereby avoid having to give you a pan card number, whereas Titan might find it difficult to do that given it is one piece of jewellery, then are you likely to lose sales to the unorganised sector which is really the dominant sector in this industry is it not?
A: You are absolutely right, but without being judgemental about this, about unorganised sector and so on, there is a simple fact which is that this unaccounted money has two halves to it. One is the consumer who is bringing in the so-called unaccounted money and there is the seller who is accepting the unaccounted money. Now, when unaccounted money comes into, when a customer with unaccounted money comes into a store, and the store accepts that transaction and does not accept a PAN card, government has lost at least one part which is when it goes into another unaccounted transaction income tax will not be paid. So, channelizing this unaccounted money into entities which are tax-paying and which respect the law at least will ensure that one part gets converted from black to white.
However, the practicalities of this is what we are currently trying to do at the industrial level and trying to convince finance ministry is that while this directionally is right, implementing this is going to be a problem so let us start at a higher level - Rs Five lakhs, Rs10 lakhs, and be very sharp about compliance. Make sure that every transaction is captured and the punitive punishment is really heavy. Or there is another way which is you have a transaction tax. You want to buy in cash, there is a transaction tax of 10 percent or 15 percent. Now, how it will go down with the public etc is a bit of a question mark. But if you are still interested only in not raising that limit from Rs 1 lakh, there are ways of being more practical.
Menaka: In fact some industry bodies have suggested that maybe you should give incentives based on credit card purchases so that people are more driven to buy through a reported means as opposed to buying in cash, but all of that aside we are trying to gauge not just what the impact on the industry will be and how you hope this will get watered down to some extent but also what the impact on Titan will be. Is this provision already operational, has it already started impacting sales in some way or when does the start date take place?
A: No, this is not operational yet. It was only mentioned in the Budget speech, there is no gazette notification yet. So right now it is not operational. Right now the limit is Rs 5 lakh.
Menaka: And what is the compliance level at that Rs 5 lakh limit. I am speaking from an industry point of view, not of Titan. I am sure you will lever that at Titan there is full compliance, but across the industry what is your experience? What is the compliance level at 5?
A: I am afraid I don't have a number but we have lost all the sale above Rs 5 lakh, I mean there was fair amount of sale above Rs 5 lakh cash transactions. We have lost that and therefore the government has lost the income tax that we were paying or the VAT that we were collecting on that and that was not such a large - our average price is Rs 65,000 per bill. So the Rs 5 lakh plus transactions were not that large.
Menaka: But do you not expect that the same might apply to the Rs one lakh and above transactions if this Budget provisions were in fact to become law, that you might lose a large amount of sales to other players in the industry?
A: Absolutely. But we are more fortunate in the sense our percentage of cash transactions even in the Rs 1-5 lakh is not very high because we get those kinds of customers who buy on credit card. Tanishq and Gold Plus and Zoya customer profile is more working class and people who come because of the Tata name. So the unaccounted money bit is in terms of percentage lower than the rest of the industry. So, in fact I expect that if it is a level-playing field and we do believe that the government will expect a level, will ensure a level playing field by making sure there is compliance across, then the beneficiary will be Titan rather than anybody else because the number of consumers we lose will be much lower and some of them in fact may come back and convince their husbands to show the PAN card and buy from Tanishq, Zoya and Gold Plus.
