New Delhi: Niti Aayog, the government's think tank has come up with a set of latest recommendations.
These recommendations can be considered as an overhaul of the Gold system in the country.
Some of the recommendations within the Aayog's latest set of documents have been spoken about in the recent past. For instance, the two major recommendations that the Aayog has sought are- reduction of the 10% import duty on bullion and an exemption of a 3% GST rate on Gold.
Economist and former Niti Aayog Vice Chairman Arvind Panagriya, had sought eliminating Gold import duties to curb cases of smuggling and evasion. Panagriya last year had sought removal of the 10% duty.
However, removal of GST and reduction in import duties is not where Niti Aayog's recommendations end.
The policy overhaul, that Niti Aayog has recommended, includes a revamp in the Gold monetisation scheme, the sovereign Gold bond scheme. as well as a consideration to the government to introduce a new Gold Savings account, a Gold board, and bullion exchanges across the country.
The Aayog believes that adopting its recommendations would lead to a greater "financialisation" of the yellow metal.
A report along with the Niti Aayog's observations had been prepared by a committee. The committee is headed by Principal Adviser Ratan P Watal.
Watal observed, "reduction in the customs duty in the past in India has been argued to support tax compliance coupled with a significant reduction in the quantum of gold smuggled into India."
"In this context, to create a tax compliant system within the sector, it is important to reduce the basic customs duty on gold to as low as possible."
GST Related Benefits:
Currently, Integrated Goods and Service Tax (IGST), has to be paid by an exporter in line with custom duty with a provision of a bank guarantee. This IGST exemption, the committee recommended should also be extended to the supply of gold by a foreign buyer.
The committee said there should be a reduction of GST on gold from 3% to appropriate levels. It did not describe what levels, but highlighted further that Job workers receiving gold from other states may be considered for exemption from obtaining GST registration.
Further, it said the threshold for exemption under GST, which at present is Rs 20 lakh, should be revised on the basis of value-added, which can be determined by using average ratio of value added to value of sales for the sector concerned.
The committee recommended GST rate for repair service of jewellery to be reduced to 3% from the current 18%.
Gold Monetisation Schemes
With regard to gold monetisation scheme (GMS), the committee said the finance ministry should intervene, must review and revamp existing Gold monetisation schemes with time-bound targets that may be set through a comprehensive gold policy.
It also said that banks should be encouraged to set up more branches to accept gold deposits under this GMS, allow deposits as low as one gram, and multiples thereof, and exempt the transfer of gold collected under the GMS from the purview of the GST.
The committee has recommended scrapping of commodity transaction tax (CTT) on gold derivatives and provision for capital gains tax exemption for gold related financial instruments.
The committee, which was constituted to recommend measures to transform India's gold market, suggested introduction of a new financial product for banks 'Gold Savings Account', that will accept rupee and credit grams of gold, with passbook facility.
Gold Board of India
It also proposed to set up a new body 'The Gold Board of India' and bullion exchanges under the Ministry of Finance. This would be positioned as a single window one stop interface - assigned the responsibility to formulate policies.
Gold as a foreign exchange asset would continue to be professionally managed by the regulator RBI, it added.
The committee said the report provides a robust foundation for realizing the policy intent stated in the Union Budget 2018-19 of developing a comprehensive Gold Policy to develop gold as an asset class and outlines the way forward for realizing the transformation potential of India's gold market.
The setup of a Gold Board of India has been ongoing for some time now. In 2016, a Business Standard story spoke about the government's intention of a Gold Board. MMTC, The India Bullion and Jewelers Association, Gems and Jewelry Export Promotion Council, World Gold Council, and FICCI had participated in a meeting to deliberate back then upon the need for such a board.
A member of FICCI was then quoted as saying in the BS report that a gold board could help streamline various policies and set transparency to imports and domestic sale of the Yellow metal. Instead of letting imports stay idle, such consignments could be lent to the domestic markets.
In March this year, another report said that the government could announce a Gold board by the end of April. But finding a regulator to launch Spot Gold Exchange was reported as a challenge. The Bombay Stock Exchange's CEO Ashish Chauhan has so far maintained exchange's keen interest in launching a futures trading avenue. But brokers concerns on cross-delivery centers has been reported as a major challenge leading to postponing the launch of such a service.
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