How would GST Affect India’s Jewellery Sector?

India’s gem & jewellery industry has been suffering from constant changes and uncertainty in tax policy. It is a wide-spread feeling among the jewellery fraternity that the Indian Government needs to work towards a more uniform and consistent taxation policy under the Goods & Service Tax (GST) regime for the GJ Industry.

Chairman of All India Gem & Jewellery Trade Federation (GJF) Mr. Sreedhar GV has recently requested the government to implement uniform 1% GST across the entire G&J sector as such an initiative would bring all jewellery manufacturers under one single umbrella. Such action would also help the G&J sector to promote ‘Make in India’ concept at grass root level and help in getting the sector more organized.

“GST is a burning issue in the G&J industry. “Therefore, we would be very happy if the government announces the implementation of 1% GST on gems and jewellery sector to place it under a unified umbrella and get it more organized,” GJF Chairman Sreedhar GV says.

But India’s chief economic advisor Mr. Arvind Subramanian has recommended a 2 to 6% tax on precious metals, which is above the 1% VAT applicable on them in most of the Indian states. Mr. Arvind feels that taxing precious metals close to the upper limit of 6% would help in keeping the standard GST rate lower for most of the goods.

Experts here think that the proposed higher tax rate on precious metals actually incorporates many hidden taxes on them and brings many parts of the jewellery industry so far outside the tax net into the tax base. Despite the proposed higher tax rates, the actual impact on these sectors may be minimal due to the removal of a lot of hidden taxes and a smooth flow of tax credits, they say.

But the industry leaders here are upset with the GST panel’s proposal. They feel that the proposed hike would not only push up the prices of gold jewellery but also encourage cash transactions. Most the Indian states charge 1% tax on precious metals, including gold. Maharashtra charges 1.2% while the rate Kerala between 4 and 5%.

“The proposal of the GST panel is not feel-good. Not only would it (higher taxation) lead to an increase in the price of gold jewellery – which in turn would result in reduced demand for the yellow metal – it would also face resistance from jewellers to pay the higher taxes,” feels Mr. Sreedhar GV.

A senior director of Deloitte in India, Ms. Saloni Roy says that the tax proposal, if approved by the government, would increase a manufacturers’ temptation towards non-compliance, especially in the unorganized segment. However, she feels that a lower standard GST rate needs a balancing mechanism where some other item would be taxed more. “Conventionally, precious metals have received a favourable treatment in India because gold is also a mode of investment here. As compared to developed countries, this proposed rate is still highly concessional,” Ms. Roy thinks.

If the government considers the leaders’ suggestions, the proposed GST can prove to be a ‘game changer’ for the G&J sector, they feel.

Posted by Suresh Chotai