Under the new GST tax regime, there is a hike in taxes on gold sales in India. Previously the tax imposed on gold was 1.2% but it has now jumped to 3% due to GST. According to the sources, this hike will likely force more transactions through the black market.
This would also encourage more smuggling into the world’s second biggest gold consumer, which buys all its bullion abroad. Gold smuggling has been extensive since India raised import duties on the metal to 10 per cent in a series of hikes to August 2013. According to the world gold council, about 120 tonnes of gold was imported into India in 2016.
Earlier, just to save 1% tax, some people prefer to purchase gold without receipts. With the 3% GST, now many more will be tempted to make unofficial purchases from small jewelers. Due to this, smaller shops will turn to sell without receipts which would potentially hit the sales of big jewelers that keep to the rules.
Director of some jewelery firm said “The GST rate has increased the incentive to bring in smuggled gold. The government should reduce import duty and make smuggling unviable”.
While another expert from the industry commented “A lower import duty would increase legal imports and ultimately legal sales. Tax revenue would go up instead of going down”.
The country’s legal imports typically stand at around 800 tonnes a year, with the metal used in everything from investment to religious donations and wedding gifts.