India is to tax gold at a rate of 3 percent under a new nationwide sales tax that comes into effect on July 1, the government said on Saturday.
The goods and services tax (GST) on gold, which was lower than industry expectations of about 5 percent, is to replace a number of federal and state levies.
LANDMARK MEASURE
“In the case of gold, keeping various factors in mind, because there was an extensive debate... we finally reached a consensus of taxing gold at 3 percent,” Indian Minister of Finance Arun Jaitley told reporters in New Delhi after a meeting of the GST Council.
The council, made up of federal and state government representatives, is preparing the landmark tax measure.
Gold jewelry, silver and processed diamonds are also to be taxed at 3 percent, while the tax on rough diamonds is to be 0.25 percent, Indian Revenue Secretary Hasmukh Adhia said.
The gems and jewelry industry in the world’s second-biggest gold consumer welcomed the tax rate, saying it would help the sector become more compliant and mature.
“Currently, the industry pays taxes around 2 to 2.5 percent, so 3 percent is almost as good as no impact,” Aditya Pethe, a director at WHP Jewellers said. “With this taxation, many unorganized players will be encouraged to enter organized trade.”
Anticipating a higher tax rate, Indian jewelers have been restocking inventory, a move that is expected to hit imports of the metal in the second half of the year when gold demand is higher due to festive season buying.
GLIMMERING HOPE
Indian Prime Minister Narendra Modi’s government is pinning hopes on the GST to boost economic growth that slumped to 6.1 percent in the quarter that ended in March.
Indian World Gold Council chief executive officer Aram Shishmanian said the government’s decision on gold was an encouraging step and would help stabilize an industry in which millions are employed.
However, with customs duty of 10 percent, the total tax on gold is still high and would continue to have an effect on the jewelry industry, World Gold Council managing director for India Somasundaram PR said in a statement.
“This may be an opportune time for the government to cut the import duty and bring down the total tax on gold significantly so unauthorized imports are totally eliminated and the industry embraces transparency in letter and spirit under GST,” he said.
TEXTILE TAXES
The tax on cotton is to be 5 percent, ready-made garments 12 percent and hand-rolled Indian cigarettes or bidis 28 percent, Jaitley said.
Apparel costing less than 1,000 rupees (US$15.53) and footwear below 500 rupees would attract a tax of 5 percent.
New Delhi has already decided to tax telecoms and financial services at a uniform rate of 18 percent and transport services at 5 percent.
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