GST On Several Goods Including Gold And Silver Might Increase, Proposal Includes Merging Two GST Slabs

GST_2

The Goods and Services Tax (GST) on finished products is set to increase from 5 percent to 12 percent from January 1, 2022.

According to the notification from the Central Board of Indirect Taxes and Customs (CBIC) on November 18, products such as garments, footwear, woven fabric, synthetic yarn, blankets, tents, and other textile products would come under the new GST slab.

CBIC has decided to lower the GST on certain synthetic fibre and yarn from 18 percent to 12 percent.

The proposed hike in GST

The GST Fitment Committee, created by the GST Council to provide suggestions to the Group of Ministers (GoM) on rate rationalisation, has proposed increasing the GST on gold and silver from the current 3 percent to 5 percent.

The committee has also proposed hiking GST rates of other goods including agriculture-related items such as tractors and other types of machinery used on farms. Lanterns, incense sticks, petromax, and utensils will also get affected by the proposed hike in GST.

The Fitment Committee has recommended that the purchase of goods that levy 5 percent GST should have a GST of 7 percent, and goods that carry 18 percent GST should be hiked to 20 percent.

It has also recommended merging the GST slabs of 12 and 18 percent to a single slab at 17 percent. The GoM will deliberate on the feasibility of merging the slabs during the meeting later this month.

Najib Shah, former chairman of Central Board of Excise and Customs, said, “I am all for a merger of the 12 and the 18 slabs, and bring it to anything between 16 to 17 (percent) and that would take care of a lot of the revenue considerations. Once that happens, the revenue-neutral rate, ideal of 15 to 17 or 16 percent will also be achieved largely.”

The GoM, which is expected to meet on November 27 for the third time, will take a final decision on the recommendations from the Fitment Committee.

The committee consists of senior tax officials who are tasked by the GST Council to assist the GoM with its recommendations.

Category

Current GST

Proposed GST

Precious metals (gold and silver)3 percent5 percent
Other goods5 and 18 percent7 and 20 percent
Compensation rate1 percent1.5 percent

Previous tax changes on gold

The price of gold jewellery is determined by a number of factors. The price of gold in its raw form includes extraction cost, processing charges, and profit margin.

Later, when the pure gold is made into a piece of jewellery, it also accrues making charges.

Now, before June 30, 2017 buying gold included taxes such as VAT and service tax. From July 2017, the Indian government brought in GST, a landmark decision that faded out VAT and other taxes.

Gold-price_India
Changes in the gold price in India. Source: Google Finance

It was decided that gold jewellery will attract a GST of 3 percent and an additional GST of 18 percent for making the jewellery.

Before GST, jewellery merchants had to pay 10 percent as customs duty in addition to 1 percent excise tax and 1.2 percent VAT.

The impact on gold prices

As the Indian economy slowly recovers from the pangs of the covid-19 pandemic, the demand for gold has also picked up in the first quarter of this year.

A report by Motilal Oswal said the import of gold bars rose by 262 percent in Q1 of the calendar year 2021. As lockdowns were eased in various states, the pent-up demand for gold due to the wedding season as well as stocking gold festivals such as Akshay Tritiya, saw a steep hike.

Also Read: What is GST? Goods and Services Tax Explained

The total consumer demand for gold including bars, jewellery, and coins surged by 37.4 percent year-on-year in the first quarter of 2021.

However, with the proposed changes in GST, prices of gold might increase dampening the demand. If the GST is indeed hiked up, buying gold jewellery will accrue 5 percent GST on gold and 20 percent on making the jewellery.

To be sure, the gold price in India has been falling since last week from its peak price of Rs 51,075 per 10 grams last Tuesday to Rs 49,305 this Tuesday.

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