GST on Gold

GST on Gold

The introduction of the GST is expected to bring about changes in the way the country conducts business. The unruly taxation landscape will be sorted out with this one tax. The jewellery industry will now be charged 3% all over. It makes life easier for everyone or does it? AJIT JOHN spoke to jewellers in the State

Gold is an obsession with the average Indian. That truism holds true for the average Goan too. Some boys like big toys but all women love gold. Before one is accused of sexism, it should be pointed out that this love is also tempered with realism. The value of gold never dips. Yes, it is a fantastic investment and is always good for a rainy day. The average Goan family buys gold for Dusserah, Diwali, Akshay Tritya and even on Rakhi when brothers now increasingly buy gold for their sisters. 

The introduction of GST at 3% is not expected to meet with any change in the business pattern according to Vaijanti of Chintamanis. She said “Since demonetisation the business has been hit but of late there have been definite signs of recovery. The routine is being set. This however being June, July business is usually slow because of the monsoons. I expect business around Ganesh to be much better than last year when we were recovering from the strike and we did not have adequate stock or designs. This year however will be great. With regards GST, it is 3%, it will not make a difference to our customers. When you look at it compared to the past it will be cheaper and anyway the 3% will be passed to the customer and I don’t really see any resistance.”      

One has to remember the tax on gold is set to increase from July 1, 2017. Prior to GST being implemented, the overall tax rate on gold jewellery stands at 12.2%. This is made up of 10% customs duty, 1% excise duty, and 1.2% VAT. GST replaces the excise duty and VAT components, but sits on top of the import duty. The headline gold rate of 3% announced on 3rd June has been welcomed by the industry, as it is significantly lower than many had feared. And, on the face of it, represents only a modest tax increase.

Vikram Verlekar, MD, Ulhas Jewellers said “this landmark decision of GST at 3% on gold jewellery and making charges as 5% slab will definitely help organised sectors to be more streamlined. It will be a difficult task for unorganised players, so moving towards technology intensive GST model maybe a challenge. It will take few months to adapt to the new rule but once that phase ends the market will stabilise. The gold consumers will face a slightly higher tax rate.”  He is one of the oldest jewelers in the State and has a varied clientele. There are several smaller jewelers in the State who may not have a similar reaction to GST. 

Subraya Dayaram said the 3 percent would have to be taken from the customer who would complain. He said “Business anyway is very low and now this, it will break our backs. You have to understand that business now is at 60% and when people spend Rs 80,000 to Rs 1 lakh, they complain of 3 percent which is big for them. We have several inquiries but how many of them will decide to buy remains to be seen. Business I am telling you will slump.” 

A jeweler who did not want to come on record said the recycling market would be at risk. He said “Selling gold to a jeweller is now a taxable transaction, for which the jeweller is liable. The jeweller pays the tax which is offset by the input tax credit they receive. This will make this part of the market more transparent. But this transparency may come at a cost. The tax authorities will know who has sold gold and how much they have sold. It will be interesting to see how consumers and retailers respond. This part of the market might clam up. Or some consumers and jewellers may try to conduct the transaction under-the-counter so it does not get captured by GST.”

There are out station jewelers based in Goa. Though no one was willing to speak about this it is expected that supply chains are likely to become more efficient.  Under the present tax regime, for example, inter-state sales of jewellery attract an irrecoverable Central government sales tax. To avoid this, firms have set-up warehouses in states where they conduct business so sales are booked intra-state, rather than inter-state. This is inefficient. Businesses often have multiple warehouses across India, with high logistical costs and they often hold excess levels of inventory. Under GST, while inter-state stock transfers will be taxable, the tax can be reclaimed once the goods are sold. If, for example, a large nationwide retailer had excess jewellery stock in one state and wanted to transfer it to a store in another state, it would pay IGST, which it can then off-set against sales revenue. Being able to reclaim the tax removes the incentive to maintain stock in multiple warehouses across India, and will allow retailers to become more efficient by consolidating warehouses and holding lower levels of inventory. 

The general sentiment can be identified as that GST may be disruptive in the short term as the industry adjusts to the new tax regime. Customers might wait and watch the situation. But the positives are significant. GST should eliminate double taxation and improve supply chains efficiency. GST can make the gold industry more transparent which, coupled with recent hallmarking legislation, should ensure gold buyers have confidence in the gold products they buy, rather than continuing to suffer from the gross level of under-carating they have previously endured.