Gold jewellery demand unlikely to be affected at 3% GST: Icra

The Government of India has announced a 3% tax on Gold Jewellery, in line with the 2%-6% rates indicated earlier in the draft Goods and Services Tax rules.

Under the present tax regime, jewellery retailers are levied a VAT of ~1% in most states (except Kerala, where 5% VAT is levied) on sales and an excise duty of 1% is levied on the input side (without tax credit).

This apart, a duty of 10% is levied on bullion imports and 15% on jewellery imports. Against the cumulative current tax rate of 2%, the final GST rate at 3% is higher, while the import duty will continue at prevalent rates.

ICRA expects the same to be passed on to end customers and the higher tax is not likely to cause any major disruption to the gold jewellery demand.

K Srikumar, Vice President and Co-Head, Corporate Ratings, ICRA, said, "Gold jewellery demand is expected to be favourable over the near-term with uptick in both rural and urban demand. Rural consumption will benefit from favourable monsoon guidance, likely rise in minimum support prices, rural employment guarantee scheme and waiver of farm loans in few states.

"Urban demand will gain traction from rising income levels, staggered pay revision for state government employees and pensioners and favourable demographic spread. The long term fundamentals of the industry remain strong driven by the cultural underpinnings in the country, evolving lifestyle, and growing disposable income."

Specifically, the organised retailers are expected to benefit at the cost of unorganised players as the overall supply chain is likely to be streamlined with the scheduled rollout of Goods and Services Tax.

In recent years, the market share of organised players have increased, due to factors like assurances on quality, purity, availability of a wider design range and rising preference for fashion jewellery.