Shares of jewellery companies rose sharply today following the government’s announcement of GST rates on gold. Shares of Titan gained 15 percent as the tax rate decided is marginally higher than what the company currently pays. Shares of other jewellery companies were up too. PC Jeweller Ltd was up 9.83% up at Rs 553.00; Gitanjali Gems up 8.72% at Rs 72.90; Tribhovandas Bhimji Zaveri Limited up 7.37% at Rs 99.80; Tara Jewels Limited up 8.04% at Rs 30.90.
“Titan currently pays an over 2 percent effective tax rate, so this is only a marginal increase but the outcome is much better than expectations of as much as 6 percent,” said CLSA in a report. The broking firm upgraded the stock to ‘Buy’ from outperform earlier, and also raised its target price to Rs 620 from Rs 555.
The GST Council on Saturday announced that the rate on gold and gold jewellery would be at 3 percent while the import duty of 10 percent, which will be over and above the 3 percent, remains unchanged. The rate of tax is lower than the lowest slab of 5% under the new GST regime to be implemented from 1 July 2017 and is closer to the current tax incidence of about 2%.
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“There was extensive debate on gold, and between 2% and 5%, there was almost a vertical division. A consensus has been reached at 3%,” Finance Minister Arun Jaitley said.
Notably, the traders’ lobby had been demanding to keep the levy on the precious metal at close to a concessional rate of 1%. Market experts had expressed concerns that a higher tax rate on gold will only add to the already high proportion of cash transactions on the commodity, and will increase gold smuggling with most traders choosing to evade taxation altogether.
“The government’s decision to apply 3 percent GST on gold is an encouraging step in the current context to stabilise the industry and address the concerns of the millions employed in the industry,” said Somasundaram PR, MD, World Gold Council India to PTI. However, he said, with 10 percent duty the total tax on gold is still high and will continue to have an impact on the jewellery industry.