The Centre is considering a lower 3 per cent goods and services tax (GST) rate on gold even as the industry sticks to its demand to keep it at a lower rate of 1.25 per cent.
The proposal would be taken up in the GST Council, which is scheduled to meet on November 24-25, to resolve pending issues for implementation of the indirect tax reform from next financial year.
“It has not been finalised as discussions are on. There is a suggestion that gold be taxed at 3 per cent. It will be considered by the GST Council in its next meeting,” an official source said.
The GST Council had in its last meeting cleared a four-tier goods and services tax structure of 5, 12, 18 and 28 per cent in the new regime. It suggested a 4 per cent levy on gold but a final decision was put off due to differences of opinion among states. In earlier discussions between the Centre and the states, a higher rate of 5 per cent was also suggested.
Industry representatives have opposed the government’s move to increase tax rate from present level of 2 per cent (1 per cent each as VAT and excise) on the precious metal arguing that it could act as disincentive for jewellers and bullion traders who are doing business in a transparent manner. They say that effective tax rate should not go beyond 2 per cent as this will render the jewellery industry unviable.
“The trade would go through severe hardship if government decides a higher GST rate on gold. It is not even in the interest of the government to impose a higher levy. We have seen the time diamond jewelleries used to be taxed at 15 per cent but then hardly any customer visited jewellery shops. As a result government did not get any revenue,” said Bachhraj Bamalwa, director at the All India Gems and Jewellery Trade Federation (AIGJTF).
The industry maintains that a GST rate of up to 1.5 per cent would ensure smooth transition to the new indirect tax regime. Besides, it will be a win-win situation for both trade and the government.
With gold being a social security instrument for a large section of the people a high rate on it may not be contain consumption but could lead to more transaction in cash and as a result could spur tax evasion. “We have worked out as to why it should be 1.25 per cent. All the states have 1 per cent VAT and 1 per cent excise duty on gold. The one per cent VAT is fixed for all the states and for all the jewellers. Coming to excise duty, about 85-90 per cent of the industry is out of excise levy. So considering that, we have arrived and calculated that the revenue of the government should not drop and at the same time accountability should be there on the industry,” said AIGJTF chairman GV Sreedhar.
“Once high tax comes, cash flow will start and lead to generation of black money,” he added.