June 30, 2017 05:30:20 AM
NEW DELHI (Scrap Monster): India is all set to roll out the biggest tax reform in its history. With only few hours left for the launch of Goods and Services Tax (GST), the gold industry like any other industry is likely to pass through a period of adjustment. In general, the unified tax system is expected to boost the country’s economic growth, which in may turn out beneficial to Indian gold sector.
With the launch of GST, gold consumers are likely to face a slightly higher tax rate. The overall tax rate on gold including customs duty, excise duty and VAT, which now stands at 12.2% is likely to increase marginally on account of the 3% duty that sits on top of 10% import duty. Meantime, GST will replace the excise duty and VAT. In effect, the total tax and duties on gold post implementation of GST may increase slightly to approximately 14%. In addition, GST may also impact gold recycling market as it now becomes a taxable transaction.
According to industry participants, GST on gold came lower than feared. The government had initially proposed 5% GST, which was later reduced to 3%, following pleas from the gold and jewellery sector. The lower rate of 3% has been widely welcomed by the industry. Nitin Khandelwal, Chairman, All India Gems and Jewellery Trade Federation (GJF) welcomed the government decision to create a special lower tax slab for gold. According to him, a higher tax slab of 5% would have had a damaging effect on gold demand.
The World Gold Council (WGC) notes that the implementation of the GST will have impact on gold consumers. The higher taxes may dent gold demand in the near immediate future. However, the long term impact on the industry is likely to remain positive. The tax reform is expected to bring in more transparency to gold supply chain by preventing under-carating. As the sector becomes more organized, consumers are likely to have more faith in gold. This in turn would enhance gold demand in the country.
The gold premiums in India surged to the highest level in almost eight months. The gold demand in India climbed higher, on account of advanced gold purchases ahead of implementation of GST. The premiums jumped to nearly $10 per ounce during this week, the highest level seen since mid-November last year. It must be noted that the premiums had stayed around $1-$2 per ounce during last week. Meantime, gold imports by the country in May ’17 has reported four-fold surge over the previous year. As per provisional data released by GFMS, the imports during the month totaled nearly 103 tonnes.
According to latest official monthly data released by the country’s Gems and Jewellery Export Promotion Council (GJEPC), the Indian gold jewellery exports dropped significantly by nearly 34% year-on-year to $533.51 million in May ’17. The country’s gold jewellery exports during the same month in 2016 had totaled $777.74 million. The combined gold jewellery exports during the initial two-month period of the current fiscal were down significantly by 31.54% when matched with the previous year.