If a suggestion by the government of India’s Chief Economic Advisor Arvind Subramanian to put gold in the 12 percent tax bracket under the upcoming Goods & Services Tax (GST) is accepted, the yellow metal may become highly expensive and encourage more smuggling.
Given that gold currently attracts 10 percent import duty, the culmulative tax on gold after adding the proposed new rate of GST would be 22 percent. In addition, there is a VAT of 1% and an excise duty of 1% for gold in India. High taxation will defintely reduce gold consumption in the world’s second-biggest consuming nation.
The All India Gems & Jewellery Trade Federation (AIGJF), which comprises manufacturers and retailers of gold jewellery, wants the government to keep the GST at 1.25%. The India Bullion & Jewellers Association (IBJA) has said that the government should bring down the import duty on gold to 6% from 10% to reduce smuggling, and fix the GST rate at 6%.
Gold analysts say that for a healthy development of trade, GST and import duty combined should not cross 12%; ideally, it should be in the range of 10 – 12 %.
“If the government expects the industry to be compliant and get organised, the procedure of GST compliance and its rate should also be easier,” said AIGJF chairman Nitin Khandelwal.
Gold demand in the country fell 21.2% last year from the year before to 675.5 tonnes, according to the World Gold Council.