The GST Council’s decision to impose a 3 per cent GST and 12.5 per cent of import duty, i.e. having total burden of 15.5 per cent on Gold has made not only make jewellery costlier but also lead to a higher incidence of illegal gold trade.It was already somehow could be seen that bringing the unorganised gold sector into the GST ambit will be a challenge.Now, Jewellers are turning to the grey market to sell smuggled bullion or jewellery at a discount, to avoid imposition of 15.5 per cent duty they have to pay in their legitimate business.
Although, At the time of Demonetization in November 2016 and the introduction of goods and services tax (GST) in July 2017, jewelers were incited to register as small and medium enterprises (SMEs) or micro, small and medium enterprises (MSMEs).
A sharp increase in contribution i.e. Rs 475,000 crore jewellery industry in India had seen of organized sector players. Their share shot up to 60 per cent in the last few years.
But the recent increase in import duty has adversely affected the organized sector players. They are now scaling or shutting down their businesses because they can’t compete with untaxed grey market gold.
New comers on formal businesses prefer to go back to their unorganized sector business by closing down their existing business. Thousands of jewellery manufacturing units have shut down their shops in the last few months.
As per the estimates of World Gold Council (WGC), India’s gold smuggling at 100 tonnes for the last few years which has increased significantly since the import duty was increased in the Union Budget 2019 in contravention with the broader market expectations of a cut.
Somasundaram said “Shifting of unorganized sector to unorganized is easy but not the reverse migration due to huge amount of risk involved in it. There could be a gradual shifting of organized players to unorganized sector”.
Jewellers estimate a total annual tax collection of Rs 35,000 crore through gold import which remained stagnant for the last few years. The increase in import duty has helped growth of the parallel gold economy through bullion import for duty evasion. In Mumbai market unofficially imported gold is sold at 1.5 to 2 per cent cheaper to official gold.
To apprise the ongoing situation in the jewellery sector, the GJC delegation will soon meet the Ministry of Finance to devise a solution to the ongoing problem.