GST: Gold business to take time to adjust to new taxes

Bullion importing banks will pay 10% import duty plus 3% IGST

Banks importing bullion, gold refineries and jewellers may have to adjust their business models to the new tax regime.

An official notification last night imposed a 9.35 per cent basic customs duty on dore importers, replacing the earlier countervailing duty. Imports will be 0.65 per cent cheaper, but gold refiners fear competition from those operating in excise-free zones.

Gold imports have come to a standstill and the market is quoting a premium of $4 per oz. 

"Restructured import duties and the IGST rates have placed gold refineries and bullion-importing banks at a disadvantage vis-à-vis refineries in excise-free zones like Uttarakhand and Himachal Pradesh," said James Jose, secretary of the Association of Gold Refineries and Mints.

For dore importers, the total tax outgo will be 12.35 per cent while refined gold importers will pay 13 per cent. 

Jose said this margin was enough to cover refiners’ operational expenses.

However, gold refineries in excise-free zones are entitled to an IGST refund of 3 per cent.

"This disparity will affect the industry and the livelihoods of hundreds of thousands of people," Jose said. 

However, a dore gold refiner in an excise-free zone said, "Units in excise-free zones will receive a refund of the Centre's share of the GST, but the rate will be considered as 3 per cent of the value addition and the refund amount will be insignificant."

Banks importing bullion also expect margin pressure after paying 10 per cent import duty and 3 per cent IGST. They can recover the IGST from buyers, but this will block funds for a couple of weeks. They are likely to focus on doing business on a consignment basis and on gold loans.

Banks will, however, require a separate GST registration for the bullion business to receive full input tax credit.

"The new tax structure will increase working capital costs. The market will take some time to adjust, but the new system will make the industry more efficient," said Shekhar Bhandari, senior executive vice-president and business head, global transactions, at Kotak Bank.