29th May 2017
The Goods and Services Tax (GST) will go live on July 1, 2017. It is an attempt by the Government of India to make India a unified territory in trade, levying one tax across the country that will subsume all the many taxes that we pay.
However, the government has not yet zeroed upon a figure for how much GST it will charge, but in this article, we try to second-guess the impact that GST rates will have on gold.
There are many reasons but on top of all sits the very basic fact about how gold is representative of the middle class of India. The more gold you have, the more "prosperous" one is. So gold plays a major role in how successful India sees itself as, which is very important in turn for the confidence of a young and developing nation.
According to a WGC report on the gold market in India, income levels in the industry were long term determinants of the gold demand by the customers. The report suggested that India has gold stocks in the range of over 23,000 tonnes, which makes it a big market on the global map. There is a gradation in how India sees gold as. It is much more of a thing in South India, which alone has the 40 per cent of gold that India has. Gold can be seen as a dominating part of the celebrations in the marriages down there. In comparison to South India's gold prowess, West India has the second most, estimated at around 25 per cent. North India has 20 per cent of the gold stocks in India while East India has the rest.
The number of jewelers in India is estimated to be good in number: it is said to be between 3.85 and 4.1 lakh. The market share of a recognized businessman is said to have increased from 5 per cent to 30 per cent in the five years since 2000 and is said to increase to about as high as 40 per cent by the year 2020.
Goods and Services Tax and its implementation has many good repercussions, one of the major ones being how it will put out everything in black and white. One the GST is rolled out on July 1, gold will make its way out from the shadows of black money. It will now be easier to trace the trade of gold, what is being sold, how much and where. The same was stressed by Somasundaram PR, who is the Managing Director of India World Gold Council.
This move will make the trade of gold, the act of buying it that is, all the more transparent, like it should be. As discussed before, of the 3.85 to 4.1 lakh jewelers in India, 70 per cent are unorganized. This is what GST will do. It will come in for these traders, force to bring them to alignment with others and give the government a greater grasp on the gold trade.
With the government still undecided about how much GST it will charge on gold, the jewelers have found an opportunity to have a say. They want the rate to be as low as possible. They say that they are seeking a GST slab as low as that of 1.25 per cent.
In the current regime, which we can call as the pre GST era, the taxes on gold and the jewelry made out of it is as follows:
1 per cent Value Added Tax (VAT), 1 per cent excise duty, and 10 per cent in case gold has been imported into the country.
Since gold is a high value commodity, traders want gold to be taxed below 2 per cent.
While retailers and jewelers want the government to keep the GST rate around 1.25 per cent, with the custom duty staying intact at 10 per cent, the manufacturers and dealers want a 6 per cent GST and instead want the import duty to be reduced to 6 percent.
The Central government is trying to reach out to the people in the business, wanting to sniff what the expectations are and so, the rates are expected to be very much in their favour. Meeting stakeholders ahead of announcing the rates will resolves potential roadblocks in the time to come. It is expected that the gold industry may take as many as 18 months to stabilize after GST goes live, and so this kind of deliberation and even delay is a welcome move.
The fear is that a high GST rate on gold will help only some of the rich, and the government's effort to weed out cash from the market will be defeated.
To a sane person, a low GST rate on gold makes sense. Not only because gold is an industry important to India and that it needs to flourish, but also because if the gold rates are too high, people will find a way to evade the tax. There is always a way, remember, and so it is important that people are encouraged to go through the legal route with lower GST rates.
The murmurs are that despite everything, gold stands to get costlier once the GST thing goes live. The Chief Economic Advisor, Arvind Subramanium, had projected a 12 per cent bracket for the yellow metal. With the tax import of ten per cent, the overall tax may turn out to be 22 per cent.
If the gold ornament is charged woth a GST of say X per cent, the jeweler will be able to adjust it with his input tax credit facility, the patent feature of GST regime.
The Z per cent tax has to be borne by us, the customers. Now what if you want to resell the gold jewelry - this is an industry in itself, remember. In this case, the value of the gold item reduces by Z per cent that was paid at the time of purchase. So, the buyers will seem to be severely impacted, whatever rate is decided by the government. This is something the government needs to consider once it makes GST live in a nation of indirect taxes.
2017 © Monetic Corp Consultants Private Limited - U74999DL2013PTC261819
Download GST E-book, An introductory guide for Goods and Service Tax by Registrationwala.
Like every GST liable business, you'll also need a GST software. Registrationwala has come up with a return preparing and filing software GST Tool.
To schedule a online demo, submit your details.