Though GST has unified the country into a single tax regime, one industry which has been hit by its implementation is gold. According to the Gem and Jewellery Domestic Council, the industry’s growth has remained stagnant following GST over the last couple of years. GST on gold has been fixed at 3%, which has made the yellow metal expensive for end customers, thereby bringing down its demand.
It’s also believed the GST rate effect on gold jewellery will prompt several players to move out to unorganised territories, thereby retarding growth of the industry. It’s not only GST rate on gold has applied brakes on the industry’s growth, but also the import duty levied on the yellow metal. It must be noted that there’s a 10% import duty on gold and since India imports a large chunk of its gold needs, the same has played a spoilsport in the industry’s progress.
There’s a fear that this could further lead to gold being smuggled, something which will not let the industry prosper. Another factor which has slowed down the industry’s growth is the taxes levied on making charges. In the pre-GST era, no taxes were levied on making charges of gold. However, today there’s a 5% tax on making charges which has further added to the woes of the industry. Earlier there was a proposal to levy 18% making charges, which after a furore was fixed at 5%.
Post-GST, gold makes are finding it difficult to maintain profit margins and the need of the hour is to chalk out a way by making regulatory changes to make the industry overcome the roadblock.
Gold Policy Draft and Reduction in Import Duties:
The gems and jewellery sector of India contributes around 7% to her GDP and 15% on her exports. The total size of this industry is currently worth around Rs. 5.3 Lakh Crore.
Any changes in government policy will have a substantial effect on this market. Hence, the Interim-Union Budget 2019 is something that gold traders and the general public are eagerly awaiting.
Both such individuals are looking forward to the gold policy draft in this upcoming budget. They seek changes in the 10% import duty and 3% GST rate on gold as both of them have various effects on gold jewellery.
The Government raised the import duty on gold from 2% to 10% back in 2013 in quick succession. This move led to numerous bullion dealers tending towards the unorganised sector.
Gold illegally entering this country increased by 10% since this new rate got imposed. Around 115 to 120 tonnes of gold entered India back in 2017. However, this decreased to around 90 tonnes in 2018.
A similar effect also came on gold consumption which decreased by 1.4%. Also, the demand for gold bars and coins decreased by 4%, according to the World Gold Council (WGC).
Rating agency CARE expects the import duty on gold to reduce to 5% in this upcoming budget where multiple revisions to the GST gold rate are expected.