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How GST impacts gold price
The GST rate for gold has been set at 3 per cent. Consumers who go shopping for gold jewellery after July 1 will see the bill go up a tad higher.
Currently, in addition to the 10 per cent customs duty, jewellers end up paying 1 per cent excise duty and 1.2 per cent VAT (varies from State to State). This brings the total tax on gold jewellery to about 12.4 per cent.
From July 1, there will be no excise and VAT, but there will be 3 per cent GST. The effective tax rate for consumers will rise to 13.5-14 per cent, says a recent note from the World Gold Council.
Under the GST regime, all artisans who make gold jewellery will have to charge an 18 per cent tax on the value addition they do. This is an extra cost for a jeweller. But the industry is not worried as it will have input tax credit benefit.
A jeweller can take credits for the taxes he pays on inputs — be it any service or good — when he sells his jewellery and has to pay tax.
Any benefit that is derived because of the tax efficiencies in the system has to be passed on to the consumer. This may not happen immediately. But over a period of time, prices will come down for consumers. This is true even with gold jewellery. Given the intense competition in the industry, even if a few players pass on the benefit to their customers by reducing making charges, the rest of the industry will be forced to follow.
For now, a gold shopper will end up paying an additional 2.5-3 per cent, immediately after GST.
WGC research spanning a period of 26 years shows that higher taxes are a deterrent to demand. However, given that GST is only going to benefit consumers in the long run, there should not be any impact on the country’s demand for the yellow metal.
The other advantage of moving to GST is that it will force even small, unorganised players to the formal sector. This is because every player would want to take the benefit of input tax credit and require his supplier to produce a bill. So, jewellers who were all along making superfluous profits by not paying tax and selling under caratage gold will have to shut shop.
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