GST on gold Hit Growth of the Industry, According to Council

While GST benefits are still being debated across business communities, it’s a fact that the new tax regime is yet to make the desired impact. Following a lot of confusion and criticism, the GST Council has made several changes in rates of GST since its implementation. Though the new tax regime has brought transparency into the system, one industry which has been badly hit by GST is gold.

No significant growth in the past two years

According to Ananth Padmanabhan, chairman of the Gem and Jewellery Domestic Council (GJC), the industry hasn’t witnessed any significant growth in the past two years. Addressing reporters during a three-day event in Coimbatore, Mr Padmanabhan said that the yellow metal has lost its sheen due to changing preferences of the younger generation as against the earlier ones who saw gold as the de-facto investment avenue to hedge against volatility.

He further added that the industry’s growth has remained stagnant after demonetisation and GST, despite the country being the second largest importer of gold.  According to estimates, India imports 800-1000 tonnes of gold every year.

How GST rate on gold have retarded growth of the industry?

Experts believe GST rate on gold has played the spoilsport in the growth of the industry. Prior GST regime, tax rate on gold was 2%. GST hiked it to 3%, which saw physical demand of the metal going down, since it became more expensive for the end customer.

Also, the fact that only 30% of gold trade is organised, the chances of jewellers moving out to unorganised territories, following a decline in demand, has applied brakes on the industry’s growth.

Import duty of 10% further hurting growth

It’s not only GST on gold which has affected the industry, but also the import duty of 10% that’s levied over and above 3% GST. While India’s gold consumption story has a lot to do with the emotion attached to the metal, it must be noted that quite a chunk of it is smuggled.

There are concerns that import duty coupled with GST on gold may further fuel this trade, which is bound to take a toll on the industry’s progress.

5% Making charges not helping matters

To make matters grim, implementation of 5% making charges on gold post-GST has further hurt the industry. Earlier the GST council had proposed implementation of 18% making charges on gold jewellery and products. Following severe criticism, making charges were restricted to 5%, which is in sharp contrast to the pre-GST era.

It must be noted that before GST, making charges of gold jewellery didn’t attract any taxes. These charges only accounted for about 12% of the price of the end product. This is, however, not the case now.

Post GST implementation, making gold products have become an expensive proposition for makers. Following GST, it’s estimated that gold makers are required to shell out an additional 2% as taxes, which is taking a toll on their profit margins.

The situation must be addressed at the earliest since India’s fascination with gold is known to all and sundry. Gold occupies a special place in Indian households and forms an integral part of major life events such as weddings. Efforts must be made to promote the industry’s growth by bringing changes in the GST rate on gold.