The Goods and Services Tax Council, which will decide the GST rates, has discussed levying 16% GST rate on gold jewellery, cutting customs duty on gold to 2% from 10%, and levying 4% GST on gold bullion.
If implemented, a buyer of gold jewellery will end up paying around 6 percentage more by way of tax as at present the total tax comes to around 12.5%, but the proposal will discourage smuggling as the cost to import gold will fall by 4 percentage points to 6% — 4% GST and 2% customs duty.
The move will ensure the Centre will not suffer any tax loss while states will get much more than the present 1% VAT on gold. Here’s how. The Centre currently gets 10% through customs duty. If duty is cut to 2% and GST of 4% is levied on gold, half of the GST will go to states and Centre gets a total of 4% —2% GST and 2% customs. And when states collect12% GST on gold jewellery (adjusting for input credit) revenue sharing will enable the Centre to get half, or 6% . So, the Centre will continue to get 10% by way of tax.
“Jewellery being a luxury item, you’re going to have to pay more to buy it,” said one of the persons cited earlier. “It’s lesser if you buy a bar or a biscuit which means that holding as a financial vehicle will cost you less,” the person said. The GST Council, comprising Union finance minister Arun Jaitley and state finance ministers, however is far from finalising the tax rates. Its third round of meetings on Wednesday failed after states opposed the Centre’s proposal of a cess on demerit goods over and above GST.
If the gold tax proposal becomes a reality, an importer would have to pay a cumulative 6% to import bullion as customs duty would not be subsumed by GST. A jeweller who buys gold from a bullion dealer or nominated agency can get input credit of 4% against the GST already paid on bullion.
The Centre in 2013 had raised customs duty on gold to 10% in stages from 2% earlier as high bullion imports were draining valuable foreign exchange and pressuring the rupee, which plunged to a record low of 68.85 on August 28 that year. However, the high duty gave rise to smuggling.
The move will ensure that Centre will not suffer any tax loss while states will get much more than the current 1% VAT on gold.
Economic Times,22 Oct 2016
