GST to boost gold industry, demand to touch 950 tonne by 2020, World Gold Council says
- GST Council has set 3% tax on gold
- WGC expects gold demand to touch 950 tonne by 2020
- GST may be disruptive in the short term
With goods and Service Tax (GST) coming into effect, India's gold demand is likely to touch 650-750 tonne in 2017 and jump to 850-950 tonne in next three years, World Gold Council said.
GST rollout is hardly a month away. The government has planned to bring in the new tax regime from July 1.
From last month, GST Council has been finalising the rates of various items. On Saturday, giving relief to jewellers, the council fixed 3% GST rate for the yellow metal.
Currently, 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.
Once the GST will be implemented, this 12.2% will be replaced the excise duty and VAT but will be added on import duty. With GST at 3% for gold and 18% for making charges or tax on services that will apply to firms and individuals providing manufacturing services across the gold supply chain.
So, considering two rates, the effective tax rate consumers face could increase to between 13.5 -14%.
According to World Gold Council report,jewellers, for example, will now be able to use input tax credits from any goods and services used in the process of selling jewellery.
"Any tax efficiencies gained in the supply chain will be passed on to the consumer. One might be concerned firms could use input tax credits to fatten their margins. But anti-profiteering legislation will ensure this is policed, and that firms pass on the benefits to the end consumer," the report said.
ALSO READ: GST rollout: What is Input Credit? Here's what you need to know about it
Moreover, the report said though most of the analysts think of India’s jewellery market as being dominated by 22 karat, the reality is that most of the jewellery sold has less gold in it than advertised. So post July 1, GST will bring in more transparency to the supply chain.
"We expect this to make it harder for retailers to under-carat their customers," the report added.
However, the report said that GST may be disruptive in the short term as the tax regime is new for the industry. Particularly, small l-scale artisans and retailers with varying degrees of tax compliance may struggle to adapt.
"While it could present short-term challenges to the gold industry, we believe it will boost the economy and make the gold industry more transparent to the benefit of gold buyers,"it said.