GST for precious metals and diamonds finally fixed at 3%: Angel Commodities Broking

Views by Mr. Prathamesh Mallya (Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking):

The speculation over the Goods and Service Tax rate on gold and diamond Jewellery is finally over with the government finalizing the rate at 3 percent, while the import duty (custom duty) of 10 percent stays, which will be over and above the 3 percent.

The retail segment desired to have the GST rate to be fixed at 1.25 percent and the custom duty at 10 percent while the manufacturers and the bullion dealers desired to have 6 percent GST and 6 percent custom duty effectively totalling around 12 percent in both the cases.

However, at present, the total levy on gold would be around 13 percent (10% customs duty + 3% GST), effectively an increase of around 1 percent than the industry expectations of the 12 percent. For healthy development of trade, GST should ideally be less than or equal to 12 percent.

Effectively, this would result in an increase in jewellery prices of gold, silver, and diamonds, however marginal it will be. This additional cost will be passed on to the consumers. In any scenario, any additional duties is directly passed on the consumers when it comes to gold, silver, diamonds, although this is a right step by the government to streamline the bullion industry in India.

At present, gold is taxed at 2 to 2.5% (Kerala 4%) and this marginal increase will not affect the players involved in the industry (nor bullion dealers nor consumers) in a big way, nor it will bring in prosperity to the government. This will help to bring in standardization of rates across the country.

Gold demand in India declined by 21.2 percent in 2016 to 675.5 tonnes according to the World Gold Council report, while the GSP post impact of the gold demand is still to be assessed, it will really not make much of difference to Indian consumers as the sentiments for the commodity remains very high for the commodity, irrespective of the circumstances.

Gold demand in India for the first quarter 2017 saw an increase of 15 percent to 123.5 tonne. vis-a-vis total demand of 107.3 tonnes for the same period in 2016. WGC maintains its full year demand forecast of around 650-750 tonnes in 2017, considering the challenges arising out of pan card registration, restrictions on cash transactions and introduction of GST.

What it means for the industry:

Although, concerns remain about transitioning in to the GST effecting July 1st 2017, the introduction of GST is widely accepted by organised players in the industry.

GST will increase paper work and lot of compliance while the organised players will move very swiftly over to the new tax regime the ones who are un-organised or not computerized and internet savvy have to be out of business.

The exchange business of old jewellery for new ones will be affected as the cost of 3 percent will affect the transaction.

Another major impact on the industry and the consumer would be on the making of gold jewellery out of gold/scrap supplied by the customer. Uptill now, there was no tax impact on the making of jewellery. Labor or making charges were exempt from service tax. Under GST, no such exemptions exist and making charges will be subject to 18% GST which will further increase the cost of jewellery, which in any case would be passed on the consumers/buyers.

The challenge would be the internet infrastructure to support such compliance and the complete roll out from the producer/dealer to the end consumer.

Source : Equity Bulls

Keywords