The gold jewellery industry is likely to take a hit in the goods and services tax (GST) regime and will take at least 12 months to recover.
Since the organised segment in the industry comprises only 30 per cent of the trade, it will need time to make the transition.
“Behavioural change is necessary in both the consumer and the trade and the inherent complexity of the supply chain will need to be factored in. It will also depend on the final tax impact and regulations,” Somasundaram P R, managing director, World Gold Council (India), said.
However, although the trade will be disrupted for 12-18 months, Somasundaram said the GST
would prove “extremely good for the industry”.
The new taxation system would provide a more transparent environment as well as curb illegal trades, which had plagued the industry for long, he said.
It has been estimated that around 120 tonnes of gold is smuggled into India every year.
The World Gold Council is of the view that the demand for the yellow metal will be flat in the second half of the year after the GST
rates are announced.
However, Somasundaram said the demand in the January-March period increased by 15 per cent and also imports by 112 per cent.
WHY JEWELLERS WILL NEED TIME TO ADJUST
•Large part of jewellers are unorganised
•30-40 per cent of a business is cash-based and out of tax net
•Even after excise imposition, 2,000 jewellers registered, rest took shelter in exemption limit
•Diamond industry, which is associated with jewellery, need an extra invoice known as way bill for goods in transit under the GST regime, raising compliance issues
•Under GST, whole chain will be in tax net, which will make business difficult for those who were not in net so far
However, it was 18 per cent down compared to the average of the past five years of the corresponding period.
It has been projected that after the GST is ushered in, consumers will prefer to buy lighter, minimally designed jewellery than they do now.
“However, it will return to normalcy as the gold market stabilises,” he added.