Jewellery duty may dim start-ups’ prospects

Finance Minister Arun Jaitley’s Budget 2016 highlight announcements were in line with the expectations of most start-ups. It was an affirmation of what had been promised by Prime Minister Narendra Modi at the ‘Startup India’ initiative in January.

However, the proposed one per cent excise duty on branded jewellery has led to concern among entrepreneurs. The business which already functions on thin margins will now be in a catch-22 situation.
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“Personally, I think they will pass it to the customers. There is no other way,” said Pinakiranjan Mishra, partner and national leader, EY.

Voylla, a jewellery and fashion accessory start-up, which acts as a seller at all major e-commerce websites, said this would strain their resources further. The company has received over Rs 100 crore in funding over the past few years.

“Imposition of one per cent excise duty on branded jewellery will have a negative impact, as it is already a very thin margin business,” said Vishwas Shingri, founder, Voylla. Listing on different marketplaces means that Voylla has to be competitive, making things trickier. It also meant that companies, with a longer burn runway, could absorb the cess and price their products slightly lower.

“These are big ticket products and even a small increase makes a huge difference when it comes to product selection. We are transparent in our pricing and will tell the customers what they are paying for. But this will make it difficult for us. This new detail doesn’t inspire us,” said Jagrati Shringi, co-founder and CTO, Voylla.

While the one per cent excise duty didn’t make jewellery start-ups happy, Jaitley’s announcement that he would introduce a Bill in the current session of the Parliament, enabling setting-up of a new company within a day brought some joy.

“The Bill would also improve the enabling environment for start-ups. The registration of companies will also be done in one day,” he added.

Analysts say, this was something entrepreneurs and venture capitalists will be excited about. “Capital, these days, is not a problem. A good start-up with strong foundations will get money. The ecosystem was looking at clearing bottlenecks and making it easy to do business. This could be the start of one of those changes,” said Mishra.

As promised by the PM, Jaitley declared three-year tax holiday for start-ups. While this part of the proposal was welcomed in concept, angel investors said the fine print made no sense for most start-ups. “There is a very silly way of looking at it when people say start-ups don’t make profits in the first three years anyway. But look closer, it is incorrect to give someone subsidy to succeed. Also, to be eligible for these tax holidays one needs to be passed by a committee, which will make it even trickier,” said Ajit Khurana, angel investor.

He also explained that the current income tax norms treated investments as profit. “If you get funded by a VC not registered with SEBI, the taxman evaluates it and if he decides that your valuation was higher than his calculation, he will treat it as profit and tax you. So, where is the tax holiday?” asked Khurana.

Jewellery duty may dim start-ups’ prospects

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