India’s luxury market hit by new legislation
The government’s move to make Permanent Account Number ( PAN ) card identification mandatory for transactions above Rs 2 lakh has hit the luxury goods business. Luxury watch retailers say their business has been particularly hit with customers feeling harassed and notices being sent by the government seeking “unnecessary details” after certain transactions.
“All luxury players in the industry are getting affected by the new rules of pan card and that is affecting sales in India,” said a spokesperson from Confederation of Indian industry (CII).
All India Federation of Horological Industries, a watchmaker’s body which includes representatives from companies like the Ethos Group are in the process of making a presentation to the government seeking more clarity and simpler compliance procedures. The federation had already made a presentation a few months ago, when there were talks of regulations coming into place. From 1 January 2016, the government made it mandatory to show PAN cards as identification proof for any transactions, including purchase of jewellery above Rs 2 lakh regardless of the mode of payment.
“Our business is getting impacted especially at certain price points. While we welcome the government’s move to reduce cash transactions and curb black money, we believe it should be done in a phased, gradual manner. This shouldn’t lead to people buying overseas and not in India,” said Yasho Saboo, president of the association, and CEO and founder of Ethos Watch Boutiques.
“Watches are the easiest products to carry back to the country and also entitle customers to duty rebates overseas. This shouldn’t lead to loss of revenue for local businesses and smuggling of watches. We will request the government for exchange of information on such overseas transactions. Many customers are unhappy and hesitate to buy,” said Saboo.
“Import tariffs are ranging between 30%-40%. This combined with the high transportation costs, causes simple price parity and margin issues for retailers. It is often cheaper for Indians to buy abroad,” said the CII spokesperson. In this year’s budget, the government has also proposed a 1% luxury tax to be deducted at source for goods exceeding Rs 2 lakh and car purchases exceeding Rs 10 lakh.
“It would definitely impact sales for certain brands, but it’s hard to tell now, as summer is anyway a slow season for us,” said a spokesperson of an Indian marketer and distributor of luxury brands, adding his firm was in the wait-and-watch mode.