The new GST tax regime that was launched on July 1, came up as the biggest fiscal reform since India opened up its market in the early 90s. Under this new regime, the gold consumers are coming under a slightly higher tax regime than the previous existing one. But overall, the gold supply chain has become transparent and is efficiently moving up to attain economic growth.
Change at a glance
Prior to GST, the tax rate on gold stood at 12.2% which comprised of 10% customs duty, 1% excise duty and 1.2% VAT. GST replaced this system but occupies the upper limit of import duty. The 3% GST on gold as was decided on 3rd June has been a welcoming move mostly because the rate was fixed lower than what many had feared while the increase was only modest. This decision was taken when the bureau of Indian Standards had come up strongly against the problems of under-carating and sought to resolve it by mandating hallmarking. So the trends have revealed that the Indian gold market is becoming transparent and organized and GST is accelerating the process.
A significant effect of GST has reduced the cost gap between organized and unorganized players of the industry. Another major effect has been that the indirect tax on the making charges of gold jewellery was slashed to 5% from the previously decided 18% slab. Mr Shehzad Zaveri, Creative Director at Minawala, said in this regard, “GST will increase the compliance cost of the unorganized jewelers and hence, the gap between the making charges of the unorganized and organized sectors will be narrowed”.
In terms of recycling of gold or reselling of gold to jewelers, there is a constraint now that it falls under the GST radar. As because jewelers have to buy jewels from customers at a taxable rate there is a tendency among some of the unregistered players to engage in down-the-counter dealings in order to avoid paying the tax.
With the coming up of GST, inter-state trade have become smoother. While inter-state stock transfers are still taxable, this tax can be reclaimed upon selling of the goods. What is to be noted here, that small scale artisans or individuals who work on the intricate patterns and jewellery by hand, previously fell outside the tax regime but under GST, every artisan with a turnover of more than 2 million per annum have to get registered.
A report in the Economic Times had revealed that, immediately after the announcement of GST there was a rush in every jewellery store across cities where people flocked in to buy goods, while the entire drive was created out of panic over an unexplained system that was new to the consumers. Even after the implementation of GST, the consumer apprehension is still there which is affecting the sales in a way, said Mahabir Jewellers. But an analysis shows that the jewellery retail industry was fragmented and mostly comprised of small independent retailers who often resorted to under carating. The notion prevails in the Indian market that jewellery market in India is dominated by 22k gold but the truth is all jewellery contains much lesser gold. So, as the predominant belief was at the time of implementation of GST, the new tax system will clean up the existing system and make it more transparent.
The industry’s reaction to GST has been overall positive. There was a fear that the tax would be fixed at 5% or more and in that case consumer demand would be affected and more importantly, smaller retailers would have avoided it. The 35 slab is manageable and leaves no apprehension for independent players as well. Amit Soni of Mahabir Jewellers said, “Jewellery Industry has welcomed Government's GST@3%, Which although is lower compared to other product's but is an appropriate rate for our industry because jewellery is a necessity product for various festivals and major family occassions. Implementation of GST norms including job work is definetly a upcoming challenge for us but it will smooth overtime. July month has seen lower sales, However , industry sees positive growth in sales in the upcoming festive & marriage season.”
Mr Zaveri, Creative Director of Minawala also stated that, “We are happy that government has created a special category for gems and jewelry industry. We feel that GST will streamline the sector. Initially it will be a little challenging for us as well as the consumers to adapt the new rules but once that phase is over, it will create a level playing field for all the players.