GST, the most talked tax reform in India is all set to roll out on 1st July and is expected to unite the country into a single market. There were a lot of debates on the tax slabs put for various sectors but have lastly been resolved. Talking about the Indian Gems And Jewellery Industry, the tax rate put on gems, gold and jewelry is much lower than what was initially put forth. The tax rate for Indian jewellery industry is fixed at 3%, lowered by 15% from the initial 18% GST rate. The Union Finance Minister Mr. Arun Jaitley, while addressing a press conference said, "The GST Council has received 133 representations. An officers' committee made recommendations after studying these representations. The GST Council has reduced the tax levels in 66 out these 133 cases. The diamond processing and others would attract a levy of five per cent now.”
The new GST tax rate is an encouraging step towards making Indian jewellery industry a more organized sector. As in other sectors, the jewellery market in India will also witness a strong impact of GST implementation. Let’s assess how this tax reform would impact the jewellery sector in India.
Current Taxation on Gems and Jewellery
Presently, the jewelers in India are paying a number of taxes to the state and central government which has been a reason behind the high rates of gold in the unorganized sector. In the organized sector, the jewelers have to pay 10% custom duty with 1% excise and 1.2% VAT as a surplus addition. The effective tax comes out to be 12.43% on jewelries and approximately 11.32% on the solid gold bars. On the other hand, the unorganized sector charge taxes much higher than these rates and make the price of gold soar high. With the implementation of GST, a uniform tax rate of 3% would be applicable on all the gold items which would discourage the growth of the unorganized gold market.
Impact of GST Implementation on Indian Gems and Jewellery Industry
The biggest impact of GST implementation on Indian gems and jewellery industry is that it would become a more organized sector. The industry would become more transparent and mature as an organized sector over the years. Transaction traceability would improve with the increased tax compliance. It is deemed as a positive move by the industry experts as it would encourage the unorganized players from the rural regions as well to enter into the organized trade of gold.
The overall tax, after the addition of the customs duty, would come out to be around 15.67%, which is somewhat higher than the pre-GST tax rates. This would influence the price of gold in the market and we may see the graph of gold price rising high. A 3.24% increase would be seen in the tax, which would, in turn, affect the price of gold. Gold will become slightly expensive for Indians in the coming time, but keeping in mind the long-term effect of GST, it would be warmly welcomed by the people as well. The demand of gold import would be lower after the GST implementation as the graphs of GFMS show that most of the import has already been done in the first half of the year.
There were demands by the All India Gems and Jewellery Trade Federation (GJF) to lower the tax rate from 3% to 1.25% GST rate so that the price of gold could be significantly lowered. Initially, the organized sectors may be affected by this new reform, but with time, they would also benefit from GST and many unorganized sectors would also enter the organized market for transparent dealings.
Overall, Goods and Services Tax is a positive move taken by the government to cut down the unorganized trade and bring more transparency in the transactions. The initial hiccups about GST implementation would soon fade away and the benefits of this revolutionary tax reform would bring a smile on peoples’ faces.