All that glitters is not gold, but all the gold glitters in the eyes of the government. In a country like India, where gold is one of the auspicious possession that an individual has, any headline concerning the bullion does create a stir in the nation. Introduction to Goods and Services Tax was no exception to the same.
Before the implementation of GST, we had to pay 1% excise duty and 1.2% VAT along with 10% customs duty for procuring any amount of gold. For example, if you have to buy 100 gm of gold at a rate of Rs 32000/ 10g, the total price would be Rs 3,20,000 plus 10% customs (Rs 32,000), 1% excise duty (Rs 3,520) and 1.2% VAT (Rs 4,266) which comes out to be Rs 3,59,786. With GST coming into the picture, the excise duty and VAT are replaced by 3% GST. Therefore, the calculation comes out to be Rs 3,20,000 plus 10% customs (Rs 32,000) and 3% GST (Rs 10,560) resulting in net value of Rs 3,62,560.
Similarly, for jewellery earlier, if you had to buy a neck piece worth 100 gm of gold at a rate of Rs 32000/10g, the total price would be Rs 3,59,786 along with making charges (Say 12% on the price of gold plus customs duty i. e. 12% of Rs. 3,52,000 = Rs. 42,240) resulting in a total of Rs 4,02,026. After the GST introduction, the same piece now costs Rs 3,62,560, along with 12% making charges (on the price of gold plus customs i. e. Rs. 42,240) and GST of 5% on making charges (Rs 2,112). Therefore, the buying price of the neck piece under the GST regime will be Rs 4,06,912.
It may be noted that there was no service tax imposed on the Jewellery making charges in the service tax regime. However, the GST council initially decided a rate of 18% on the making which was subsequently slashed to 5% at the time of introduction of GST being at a very high tax rate.
Under GST, the retailers can avail the input tax credit on the product or service being sold. For the yellow metal industry, this can prove to be beneficial as this facility will initiate a shift from unorganised sector to the organised sector. Also, the stand-alone and independent small retailers would definitely try to boost their profits under the GST regime. Many jewellers outsource the making, which would make them liable for 5% tax on the service. This would want them to start in-house production, further reducing the manufacturing cost and increasing the earnings.
In November 2016, the repercussion of demonetization was visible in the gold industry. As higher currency notes were made invalid, the black money was converted into gold, thus ascending the demand for imports increasing the current account deficit. By increasing the prices of gold, the government would be able to improve the earnings from the industry. Therefore, the government may provide an additional subsidy on gold for the jewellers depending upon the demand and supply. Also by increasing prices, the government is indirectly marketing the consumers to invest in sovereign gold bonds instead of actual gold. By investing in the sovereign gold bond scheme, the actual demand for gold and its import will reduce. Reduction in the import of gold will lower the current account deficit which will be extremely beneficial for the Indian economy.
Hike in the prices of gold would possibly increase the unorganised sector. Also, the consumers would want to buy unregistered gold and gold jewellery to pay less. This will promote a higher number of cash transactions thus promoting gold smuggling and black money.
GST brings transparency in the supply chain. This supply chain is very small for the bullion industry. In the long run, the introduction of GST will prove to be a masterstroke benefiting both the retailers and consumers.