GST Anniversary: Jewelry sector expects elimination of cumbersome processes; Also, is Gold cheaper after one year?

Last Updated: Mon, Jul 02, 2018 15:25 hrs
Gold (Image Courtesy: Bloomberg)

Mumbai: Last year, around the same time, heads of various sectors had huddled themselves into smaller workshops, seminars and conferences.

The purpose was to understand the intricacies of how the Goods and Services tax, considered among India's biggest reforms would either make or break their businesses. The Gold and jewelry sector, one among India's most consumed as well as exported products had its own share of confusions. Sharing knowledge was expected to eliminate some of these confusions.

Filing returns, claiming credits, and the nuance of the GST's (Goods and Services taxes) completely online system, which had been reported of shutting during month-end and during the first 2-3 months, had lead most to a wild goose chase.

But, even as GST completes a year of implementation, most jewelers including the heads of a few associations such as the Gems and Jewelry Export Promotion Council, or the India Bullion Jewellers Association or even the World Gold Council have given the GST a thumbs-up.

The net impact so far has been positive but a few issues and cumbersome processes still persist, which if implemented well by the GST council could offer an unparalleled ease for doing business. A handful industry captains were quoted by news agency PTI as saying this.

GJEPC an association of gems and jewelry exporters in the country believes that a few processes could be simplified. For instance the sector faces a 3% GST on gold import for export purpose. Colin Shah, the vice-chairman at this association was quoted saying that banks charged 3% GST up-front, but reimbursements could be claimed only through input credit. There is an expectation that this could have been GST free.

The GST council would be forced to factor in two points. With the Dollar in a bull-run, one can assume that exporters could be earning significant Dollars for themselves and the country. And therefore the 3% could be too insignificant an amount. But on the contrary even that could be viewed as an anti-export policy, one that could result in costlier products on landing upon export destinations. By taxing a 100% export market, we could be exporting our taxes.

Shah was quoted as saying that besides this, most things have settled in the past year. He claims GST is simpler than the previous regime where Octroi, VAT and customs duties involved the hassles of physical paper work. For the diamond sector, the 0.25% GST has made life much more simpler.

Claiming Credits

Businesses can claim input credits on a few raw materials or services, integral to the production of a product. For example a small business engaged in baking cookies can claim credits on the taxes it has paid for procuring raw materials such as wheat, toppings, water, electricity etc and also for engaging certain services. Although the example sounds quite simple, the actual mechanism drawn by the GST council could differ in various instances.

A major grouse for most exporting organisations was the up-front taxes that they had to pay and claim credits. Exporters around a year ago had rued that the process of claiming credits was time-consuming and ate into their working capital.

Nitin Khandelwal the Chairman for Domestic Council at All India Gems and Jewelry Council was quoted explaining in the PTI report that jewelers couldn't claim credits for traveling expenses when it involved out of state travelling for marketing products. Travelling costs to participate in trade-shows or conferences are classified under marketing expenses, but currently jewellers say there are no input credits for such expenses.

Otherwise, he believes that the GST is a boon for the jewelry industry.

Most jewelers and association heads have found the transition smooth. In the words of Saurabh Gadgil, a Director with the India Bullion Jewellers Association and CMD at PNG Jewellers, there were problems initially on account of various confusions. These may have settled over time, but Gadgil said that the government may have to rationalize the slabs.

"Most countries who have GST have maximum 2-3 slabs and going forward I am sure the government will work towards it," he said.

Customer impact

Somasundaram PR, World Gold Council's Managing Director for India finds that the net impact for the industry has been positive although a slightly higher tax rate could make purchasing a tad expensive for gold consumers. "We expect GST to accelerate the process of making India's gold market more organised and transparent, which should be good for consumers." he said.

"There still remain areas that need to be addressed to make GST simpler in order to promote organised trading and exports if India has to emerge as the jeweler to the world and gold's economic contribution substantially enhanced," he was quoted as saying.

Legalities

Revenue Secretary Hasmukh Adhia in one of his interactions had hailed GST as a success after collections hit monthly revenue of 1 lakh crores. Here is the story.

Revenues on the higher side may prompt some to believe that GST is completely strain-free, but practicing heads from Khaitan and Company's legal team explain that there are persisting challenges.

Abhishek Rastogi, Partner and Rashmi Deshpande, Associate Partner explain that their firm has filed the maximum number of writ-petitions across various sectors. Their team has filed writs in the areas of legal services, IGST (Integrated GST) on imports under advanced authorisation, Ocean Freight, transitional tax credits on pre-GST stocks beyond one year, benefit of inverted duty-structure and procurement from unregistered dealers, etc.

In a press-briefing the attorneys share that the challenges on refunds and credits processes still persist. "95% tax assesses still do not get their refunds according to the prescribed timelines," adds Rastogi.

With reference to IGST, the attorneys explain that in instances of a transaction of providing services between head office and branch office, an IGST component is levied. "This is a controversial provision and we have filed writ-petitions against it," concedes Deshpande.

The implementation of GST in the gold and jewelry sector had caused a flutter around a year ago:

It was believed that the implementation of GST could organize the sector, which on date observes nearly 65-70% transactions via unorganized market players. Greater transparency and accountability was expected to curb gold smuggling. But Gold smuggling was reported to have caused a loss of Rs 10,000 crores to the state government of Telangana alone. A story published in the Deccan Chronicle reported of rising customs cases. The customs department is learned of filing as many as 120 cases of customs evasion in the six months to December 2017.

India imposes a 10% duty as customs on Gold. This leads to a price difference. "The gold is cheaper in the international market. If imported through the legal route, a 10 per cent of the total value plus other taxes have to be paid. To prevent smuggling, the import duty should be brought down to 4 per cent," suggested M Gopi Krishna, a member of Telangana Gems and Jewellery Association.

International spot markets have seen Gold dropping to levels of $1240 from $1350 (December 2017) on account of rising Dollar. Gold is cheaper in overseas markets, but weaker Rupee may has meant costlier gold in domestic markets. This could further rise cases of smuggling.

On the consumer front, a 5% GST on making charges for custom orders has been referred by customers as an added burden. But these are slashed rates. A year ago, making charges were taxed at 18%.

Jewelry makers and are exporters are hopeful that the GST in its second year will remove most of the persisting issues. Consumers, on the contrary are awaiting of rates cooling down. For those of you interested in checking the Gold price since the implementation of GST, here is a graph of the price of 22 Karat gold.

Data Source: IBJA rates at month-end.

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