Business In The GST Era

Bullion analyst Sanjiv Arole evaluates the pros and cons of the recently implemented Goods & Services Tax (GST).

Sanjiv Arole

This story could be straight out of a moral science textbook. A small girl, of around five years of age, was unwell with a stomach infection. She took her syrup for fever happily as it was sweet. However, she did not quite like the medicine for the stomach infection as it was very bitter. She simply refused to drink it – yelling and weeping non-stop. No amount of cajoling helped. Fed up of the histrionics, the mother roped in the father to convince her, but to no avail. Finally, their collective patience ran out, the father pinned her down and the mother pinched her nose and forced the medicine down her throat. The next dose of medicine did not take that much time and the little girl has since then taken her bitter pill whenever it was required.

The Indian bullion/jewellery industry could well empathise with the tale. For, they went through a similar experience last year when 1% excise duty was thrust down their throat by a very persuasive, resolute and adamant government at the centre.

No sooner did the union finance minister announce the excise duty, than the jewellery trade took to arms and went on an indefinite strike. For, the imposition of excise duty reminded them of the days of the obnoxious Gold Control Act and the draconian powers that the excise department wielded.

The trade panicked and refused to listen to the government, demanding that the tax be withdrawn. The standoff lasted for over 40 days and finally the trade was forced to swallow the bitter pill, as the government made it clear that even if the shops were closed for 1,000 days it would not budge. However, the government did retreat a bit as the excise duty was imposed only on branded jewellery. The government put the message across in no uncertain terms that the excise duty was imperative for the roll out of the Goods & Services Tax (GST).

The government ushered in GST amid much fanfare in a midnight session in the Central Hall of Parliament. Whether it is the most important reform since independence should be best left to politicians to squabble among themselves. The government claims that after demonetisation and digitisation, GST would help in curbing corruption. Critics opine that though the idea is noble, its execution lefta lot to be desired. There were far too many rates and both small and medium traders as well as the consumer would suffer hardship due to the hasty implementation.

The GST rates are set at 0%, 0.25%, 3%, 5%, 12%, 18% and 28%. An additional cess takes it up even further. The gems and jewellery trade had been advocating a 1.25% rate for gold and 0% for exports. There was market speculation of 4% GST on gold for many months, however, it transpired that while some states (like Kerala who already had VAT of 5%) in the GST advocated a 5% rate for gold, others like Maharashtra and Gujarat (manufacturing states) advocated a 2% GST.

Ultimately, the GST Council settled on a rate of 3% for gold and gold jewellery. The trade was also worried about a possible GST of 18% on labour charges; however, the GST Council settled on a 5% rate on labour charges. The diamond industry was greatly disturbed by a 0.25% GST on imported rough diamonds. The Gem & Jewellery Export Promotion Council (GJEPC) is still trying to convince the government that it is a retrograde move, and that any refund for exporters not only delays matters, but increases costs as well.

Moreover, it would needlessly put additional compliance burden on exporters. Finally, all imports into Special Economic Zones (SEZs) will not be charged any GST, but elsewhere, import of rough will attract 0.25% tax.

There was great confusion initially when unsorted rough diamonds (around 60% of all rough imported) were slated to attract 3% GST. But, representation by the GJEPC among others saw a clarification that 0.25% would be the GST for all imported rough diamonds. The 3% GST is only on industrial diamonds.

It is a fact that the gold trade was forced to eat humble pie over the excise issue last year. So, even though the trade may have felt strongly about a 3% GST and wanted to stick to their demand for 1.25%, there was very little that they could do anything collectively about it. Their demand for lowering of import duty, too, has been shelved till the next budget at least.