GST can make the gold industry more transparent-World Gold Council

The tax on gold is set to increase from 1st July 2017. Prior to GST being implemented, the overall tax rate on gold jewellery stands at 12.2%. This is made up of 10% customs duty, 1% excise duty, and 1.2% VAT.1 GST replaces the excise duty and VAT components, but sits on top of the import duty. The headline gold rate of 3% announced on 3rd June has been welcomed by the industry, as it is significantly lower than many had feared.

GST will bring greater transparency to the supply chain, and bring more of the gold market into the formal sector. We expect this to make it harder for retailers to under-carat their customers. And separately, a slew of measures from the Bureau of Indian Standards is pushing the industry towards mandatory hallmarking, which will also tackle the issue of under-carating.

 

We believe GST may be disruptive in the short term as the industry adjusts to the new tax regime. Manufacturers' and retailers' working capital could be tied up because of inter-state gold stock transfers. Small-scale artisans and retailers with varying degrees of tax compliance may struggle to adapt. Consumer demand faces a headwind from the higher rate of tax. And consumers and jewellers may try to conduct recycling transactions under the counter, away from the prying eye of the tax man.

But the positives are significant. GST should eliminate double taxation and improve supply chains efficiency. GST can make the gold industry more transparent which, coupled with recent hallmarking legislation, should ensure gold buyers have confidence in the gold products they buy, rather than continuing to suffer from the gross level of under-carating they have previously endured.

And India's entire economy is on a rapid journey to becoming more organised and more transparent, boosting economic growth. This is vitally important for India's gold market: our econometric analysis reveals that income growth is the single biggest driver of gold demand in India.

In summary, GST represents a radical step forward for India's economy. While it could present short-term challenges to the gold industry, we believe it will boost the economy and make the gold industry more transparent to the benefit of gold buyers. This should support India's gold demand, which we expect to be between 650-750t in 2017, rising to 850-950t by 2020.

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