Given that gold, gems and jewellery, along with diamonds, are the second most critical area in terms of accumulation of black money after real estate, the Goods and Services Tax (GST) council has done well by fixing a rate of 3% as against the existing 2%, besides imposing a nominal 0.25% on rough diamond.
The 3% GST rate will help bring a large part of the gold and jewellery business in the tax net which is crucial for curbing the circulation of black money.
Given that gold, gems and jewellery, along with diamonds, are the second most critical area in terms of accumulation of black money after real estate, the Goods and Services Tax (GST) council has done well by fixing a rate of 3% as against the existing 2%, besides imposing a nominal 0.25% on rough diamond. What is significant is the fact that this move—considering the tax on gold, jewellery and diamond has been a politically sensitive issue—will not only bring in revenue, more important, it is expected to bring in a large chunk of the industry into the recorded transaction ambit, which in itself, will help in curbing the movement of unaccounted income in this segment. That all the states have agreed on these rates besides sticking to the July 1 implementation date, despite West Bengal’s opposition to it, clearly shows that the central government has succeeded in convincing the states that the GST must yield results in terms of weeding out the large presence of cash transactions which are outside the taxation system at present. By not agreeing to fix the lowest tax rate of 5% in the four-slab GST structure, with 12%, 18%, 28%, and 12% cess on items like tobacco and luxury cars over and above the 28% rate, even though the GST council has ended up adding another rate to the structure, the 3% rate on gold is a good compromise between the industry concerns and the states’ demand.
Going ahead, as the base expands, and the GST structure is rationalised with reductions in both rates and number of slabs, the tax rate on gold could also be changed suitably, but for the time being, the 3% rate is a good one to begin with.
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The rates fixed for other items in Saturday’s meeting of the council also reflect the council’s success in finding a workable way for implementation of GST from July 1 – 5% rate for packaged and branded foods, 28% for bidis without cess, while keeping the rate for tendu leaves at 18%, biscuits are also being taxed at a flat 18%, even though footwear costing up to Rs 500 will be charged 5%, and 18% above that.
In the critical textile sector too, while the jute and silk fibre have been kept under the exempt category, cotton and natural fibre along with all kinds of yarns will attract 5% tax, while man-made fibre and yarn will be charged 18%—with a 5% rate on all fabric, man-made apparel up to Rs 1,000 will also attract 5%, and the 12% rate will be applied on such apparel above Rs 1,000.
While the GST council has tried to keep the rates for the majority of the items close to their current rates, if the states and centre show the co-ordination and unanimity shown in the council in implementing GST at the ground level, there is no reason why the current rate structure can’t be moderated with enhanced compliance.