The financial cost of importing gold and diamond is set to increase on account of Integrated Goods and Service Tax (IGST), as importers’ capital is likely to be blocked until refund comes. Even as exporters propose to raise bank guarantees to avoid refund complexities, domestic bullion traders, as well as importers and exporters of gold are expected to face several operational issues when GST is implemented from July 1.
The bullion industry is generally happy with the three per cent GST rate applicable on gold, but it remains worried about the operational difficulties of doing business. Industry players have made representations on this to the finance ministry and, “we were assured that such operational issues would be addressed at the GST council meeting next week,” said an industry representative.
In case of imports, the agency — a bank or a nominated one — has to pay IGST of three per cent for bringing gold into the country. When it sells the imported gold to a dealer or a jeweller in the domestic market, it has to apply for a refund, which usually takes long to come. This will increase the cost of operation. On any transfer among branches, IGST would have to be paid and one could recover this from the customer only at the time of sale. “Working capital required for conducting gold business will increase,” says Shekhar Bhandari, senior executive vice-president and business head, global transactions, Kotak Mahindra Bank.
According to an industry veteran, this additional cost will have to be borne by the buyer of gold. While this is for the domestic market, import of gold comes through a different channel. The gold that is imported for exports is duty-free, but the importer gives a bank guarantee equivalent to a 10 per cent duty and an undertaking that such gold would not be diverted for domestic use. The Gem and Jewellery Export Promotion Council Executive Director Sabyasachi Ray says: “While representing to the government, we raised the question why we must pay IGST on gold imported for exports. Importers will give bank guarantees for 13 per cent. A similar provision can be made for rough diamonds, which attract 0.25 per cent GST.” This is because exporters’ experience of getting a VAT refund is quite bad; it takes two years for the refund to come. In any case, 95 per cent of all rough diamonds are used for exports.
Another issue that GJEPC has raised is that GST being charged at 18 per cent on making charges will be another big burden for karigars. That’s also a burden for exporters who have to claim the refund. Additionally, GJEPC wants that exporters should not have to first pay tax on making charges and then claim refund. The GST council is also meeting the governments all states where diamond and gold procession takes place.
Source: Business Standard