In today’s article, let us see the impact of Goods and Services Tax (GST) on making charges and GST on the exchange of gold.
Impact of GST on gold
The implementation of GST has a great impact on gold, soaring up the gold prices to a 2-month high. Although, physical demand for gold has been lower because of the 3% GST that is levied upon 10% of import duty. In other words, gold has become expensive, by about 0.75% post the introduction of GST.
Earlier, the tax on gold was 1% service tax and 1% VAT , amounting to 2%. GST have hiked the tax rate of gold to 3%.
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.
Has GST has any effect on gold making charges?
Yes, gold now has a making charge of 5%. GST council had earlier decided 18% for gold making charges, however, when GST was implemented, they decided to keep it at 5%
The Goods and Services Tax (GST) for gold was fixed at 3% and an additional 8% tax was fixed to be levied on making charges. This was condemned by many gold associations in India, and the tax on making charge was reduced to 5%.
The spike in the rate of gold can due to the import duty which has been retained. Currently, gold attracts an import duty of 10%, in addition to 3% GST, and 5% making charges (GST).