The curiosity of the effect of GST implementation on gold prices is genuine. Women love jewellery but it comes with a price and with the implementation of GST, whether those prices have lowered or increased is still a question for most.
The price of gold following the adoption of the Goods and Services Tax (GST) regime has seen some fluctuations. Analysts were apprehensive that the tax would lead to a decline in demand for gold due to the high incidence of taxation. The GST for gold was fixed at 3%, with an additional 8% tax levied on making charges. The tax on the making charge was then reduced to 5% due to concerns raised by various groups
At present, gold prices are seeing a rise due to unstable markets in spite of the additional tax burden. While the overall price of gold has risen, this has been due to the import duty associated with the metal, which has been retained. As a result, gold continues to attract an import duty of 10%, in addition to the 3% GST and 5% making charges GST.
The price of gold after GST has been steadily increasing due to higher demand for the yellow metal in overseas markets. The plunging U.S. dollar has led to higher volumes of trade in the metal, thereby increasing its value.
Impact of GST on making charges
Long-term outlooks regarding the gold rate in india after GST appear to be mostly positive. Fears of increased smuggling due to the high costs associated with buying the metal abound, but it remains to be seen if these will come to pass. For the moment, the jewellery sector appears to be content with the price of gold after GST, though consumers have a few complaints over the rising cost.
In addition to this, the government has also levied a 5% tax on making charges. At present, there is no tax on making charges, which account for close to 12% of the actual cost of the gold.
The tax on making charges was initially fixed at 18%, but appeals from Indian jewellery councils and bodies to reduce the rate resulted in the government fixing it at the present 5%.
A higher tax on making charges would have increased the burden on consumers, since the added cost would have been passed on to them. The initial rate of 18% would have also resulted in consumers having to pay close to 4% as tax.
Moreover, there have been some impacts on different sectors of gold:
Impact of GST on gold import
It was reported in the media that gold traders are making the most of GST’s implementation, and sought of importing 25 tonnes of gold from South Korea in July and August. Gold importers are merely taking advantage of the recent tax change and the Free Trade Agreement with South Korea, which allows importers to ship in gold without paying a 10% customs duty.
Impact of GST on the organised gold sector
It is believed that the implementation of GST will have dramatic affects on gold trade as only 30% of the gold trade is organised. Although GST is set to benefit the organised gold trade, as by having greater transparency and accountability, it may also prompt some jewellers to move to unorganised areas. This might happen by buying cheaper smuggled gold and selling without bills.
Impact of GST on unorganised gold sector
It is estimated that India imports 700-800 tonne of gold annually, out of which almost 30 is smuggled (mainly through Dubai). This gold comes under the unorganised sector. GST has spiked the gold rates by 13%, which may increase the chance of smuggled gold making its way to the Indian shores, more than usual.
Many gold and silver merchant associations in India are requesting the government to reduce the importing duty on gold to 6%, like in the past. Also, the GST framework requires businesses to report every transaction to claim input credit. This might hurt the unorganised gold market.
Jewellery bodies and councils have lauded the change in rate and are confident that it will result in greater transparency in the gold manufacturing market.