GST: Jewellers breathe easy with 3% tax on gold, 0.25% on rough diamond

Exporters say tax on rough diamonds hampering exports

The jewellery sector has welcomed the goods and services tax (GST) on gold and gold jewellery at 3 per cent.

However, with the existing 10 per cent import duty remaining, consumers will have to pay an effective duty of 13 per cent on gold jewellery, up from 12.5 per cent (10 per cent import duty, 1 per cent value-added tax, 1 per cent excise duty, and 0.5 per cent of cess).

Most importantly, the government has allowed set-off for the sum paid to workers by jewellers. 

“It is a win-win situation. We had requested the government to keep the same tax structure,” said Surendra Mehta, national secretary, India Bullion and Jewellers Association (IBJA).

Sanjeep Kulhalli, vice-president (marketing), Tanishq, said: “The industry wanted a lower rate. But the government’s decision on rates is reasonable.” 

The jewellery industry had suggested 1.25 per cent.

The government has levied 0.25 per cent on rough diamond, which, according to Finance Minister Arun Jaitley, is meant for audit trail. 

“The GST rate of 0.25 per cent on rough diamond would make no difference in terms of pricing of jewellery,” said Mehul Choksi, managing director, Gitanjali Gems Ltd.

However, Praveenshankar Pandya, chairman, Gem & Jewellery Export Promotion Council (GJEPC) is disappointed as 95 per cent of the rough diamond is used for exports and claiming refund for it is time-consuming, according to him. He wants relaxations in the rates on gold and rough diamond imported from canalised agencies for re-export.

Rajesh Mehta, managing director, Rajesh Exports, one of India’s largest jewellery manufacturers and retailers, said: “The GST at 3 per cent continues to be around 1 per cent higher than the existing rates. This means consumers will have to pay 1 per cent more on the purchase of gold and gold jewellery. But, to discourage smuggling, the government would need to bring the import duty down to 2 per cent in phases.”

Somasundaram PR, managing director, World Gold Council (India), said: “The transition will be disruptive in the short term, as the large unorganised segment and consumers adjust to the new tax system, but in the long term, it will streamline the gold trade and boost value addition.” 

Rajesh Khosla, managing director, MMTC Pamp, India’s sole bullion refinery approved by the London Bullion Markets Association, said: “We have seen gold consumers buying at even $1,900 an ounce (28 gm). So, today’s gold rate at $1,250 an ounce will not affect consumer sentiment. Gold buying would be more through official channels. For refineries like us, we do not generate too much from domestic sources. Hence, the GST rate would not affect our refining business.”

India’s gold demand has been estimated at around 650 tonnes for the calendar year 2016. Of that, 75 tonnes was smuggled.