GST on gold deferred as consuming and producing states spar over rates
The GST Council on Friday deferred its decision on the rate of tax to be applied to gold to its meeting on June 3 meeting, following persistent differences between consuming and producing states. Gold consuming states have been insisting for two per cent GST on jewellery while other states are okay with a rate of five per cent. The Council had proposed 4 per cent as the consensus rate, but was ultimately unable to take decision on the matter.
At present one per cent is the effective excise duty on gold jewellery, while VAT is 1-1.25 per cent in most states. In Kerala it is 5 per cent but under the composite scheme, which most jewellers have been opting for, the effective rate is around 1.25 per cent. The Gem and Jewellery Federation of India, or GJF, had proposed 1.25 per cent GST while the Indian Bullion and Jewellers Association (IBJA) had wanted 2.25 per cent, combining VAT and excise. The bullion industry pays 10 per cent customs for imported gold.
The issue of GST on gold jewellery was to have been resolved in Friday’s council meeting. However, but apart from rate differences, another issue that cropped up was about the rate payable when gold is sent for jewellery making on job work. Job work done outside is a costlier affair, but most jewellers, especially those in the organised market, prefer this route. Job work is taxed differently. The confusion, according to sources close to the development, is the taxability of making charges. When jewellery is made on job work, the making charges attract 18 per cent tax. Now, even if job work charges or making charges work out to 10 per cent of the value of the jewellery, jewellers will have to effectively pay 6 per cent tax, compared with 4 per cent GST suffered by those who make jewellery in-house.
If jobwork is subsumed in GST, then the total rate has to be fixed at a higher level, which did not find favour in Friiday’s meeting, as gold is a high-value item with thin margins. Besides, there was also the issue of compliance and the cash-chasing-gold phenomena prevailing in India.
The decision now is expected to be taken in next GST council meeting on June 3.