Low GST rate could hit small jewellers

Gold jewellery displayed at a shop in Delhi. Photo: Reuters

There's a bit of a paradox in the lobbying by various trade and industry bodies of bullion dealers and jewellers for fixing the coming Goods and Services Tax (GST) rate not higher than what they pay on Monday.

For, say experts, a lower GST rate could be detrimental to the small jewellers, the ones who get their saleable items done by job workers.

This is the GST on job work charges would be 18 per cent. Whereas, to stay at the same level as the present levy, the GST on jewellery would be two per cent. Which is all that small jewellers may charge from customers, while they'd be paying much more to get the job work done.

The number affected would not be small. India Brand Equity Foundation, a government agency, says the gems and jewellery market in India is home to at least 500,000 entities, the majority being small ones. GFMS Thomson Reuters says around 2,000 jewellers had registered by December for the new excise levy; small (turnover) ones were excluded. Reading both sets of data together, most jewellers in India are small.

Take this illustration. The All India Gems and Jewellery Federation has proposed GST be 1.2 per cent; India Bullion and Jewellers Association (Ibja) has proposed that customs duty and GST on jewellery not exceed 12.2 per cent. If the government wants to keep customs duty at 10 per cent, GST would be 2.2 per cent. Which is what jewellers pay now — one per cent excise and an average value added tax of 1.2 per cent.

Now, if gold worth Rs three lakh is given on job work, with Rs 40,000 as making charge, one pays 18 per cent of Rs 40,000 or Rs 7,200 as tax on the job work. Plus Rs 6,000 on gold at two per cent GST, totalling Rs 13,200 as tax. However, in selling the jewellery, one may collect only two per cent of the sale price of, assume, Rs 3,50,000. That is Rs 7,000. hence, one collects less from the customer than one pays to the treasury.

Against this, those having an in-house facility and sell jewellery containing gold worth Rs 3 lakh, plus a Rs 40,000 making charge and margin of Rs 10,000, would collect GST of Rs 7,000 and pay it to the treasury. Which leaves the small jeweller in such a case the loser; a low GST could kill their business.

Surendra Mehta, secretary of Ibja, elaborates: "If the government agrees to a composite GST for jewellers at two per cent, those without their own factory would make a loss. For, the composite tax won't apply on job work. Under a composite GST, the tax on making charges should also be two per cent, similar to GST, to avoid this ambiguity."

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