Post the rollout of the Goods and Services Tax (GST) on July 1, gold prices are set to rise marginally.
This follows the decision of the GST to impose a three percent tax on the yellow metal.
The 3% tax represents a minor increase on the current rate of 2% (1% Excise duty +1% VAT) being levied on gold. This 1% rise in tax is now likely to be passed on to the customer.
Gold buyers will also have to pay an additional 5% GST on making charges and this too will add to the bottomline with making charges ranging from around 5%-25%.
Will check under-carating
But there could be significant advantages too that GST would usher in for customers.
"The tax should also change the industry to the benefit of the consumer. Consumers currently get a bad deal. The industry is highly fragmented, dominated by small independent retailers where under-carating is rife. While most analysts think of India's jewellery market as being dominated by 22k, the reality is that most of the jewellery sold has less gold in it than advertised. GST will bring greater transparency to the supply chain, and bring more of the gold market into the formal sector. We expect this to make it harder for retailers to under-carat their customers," the World Gold Council observed in its note on GST.
"India’s gold market is becoming more organised and transparent, and it is likely GST will accelerate this process," the Council added.
Full Coverage: All the latest news, views and FAQs on GST
Other expert views
"The net raise in taxation is only 1 per cent," Darshan Shah of N Gopaldas Jewellery told the Gulf News. "In some states, there will a drop of taxation by 1 per cent as their VAT is lower.
"Considering the overall industry standards across the world, the GST is very low. The higher volume of consumption justifies this. End consumers are not affected," he added.
Talking to the same newspaper, Joy Alukkas, chairman of Joy Alukkas, also welcomed the move, observing that "So much of gold buying in India was done through small retailers and sales were never recorded properly on their books. When you had those levels of under-invoicing - even no reporting - it was detrimental to those retailers following the rules. And the tax authorities were losing money all the way."
Aditya Pethe, a director at WHP Jewellers, was another who hailed the decision to create a lower GST band for gold. "Currently, the industry pays taxes around 2 to 2.5 percent, so 3 percent is almost as good as no impact. With this taxation, many unorganised players will be encouraged to enter organised trade."
PR Somasundaram, Managing Director, India, World Gold Council, had this to say: "This may be an opportune time for the government to cut the import duty and bring down the total tax on gold significantly so unauthorised imports (Editor's note: smuggled gold) are totally eliminated and the industry embraces transparency in letter and spirit under GST."
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