GST rate for gold, other items fixed: Will it raise demands for more special rates? Experts weigh in

The GST Council on Saturday completed the work of bringing all items under a 4-slab tax structure with gold attracting 3 percent rate, ending suspense on the item dear to Indians, even as all states barring West Bengal agreed on the rollout of the new indirect tax regime on 1 July. Industry said that traders need to gear up for the transition as more delay was unlikely.

Here's what tax experts and corporates about the latest decision of the GST Council:

MS Mani - Senior Director, Deloitte Haskins & Sells LLP

The GST Council has done an admirable job by finalizing all rates and rules. It is hoped that the next meeting scheduled on 11 June is the final meeting before the roll out date of 1 July as it is necessary for businesses to have a final view of the changes to be made instead of continuing to make incremental changes.

The decision to create a new rate category for gold, silver and diamonds at 3 percent indicates that the government has maintained the parity with existing tax rates; however, this may open the door for other products to request special rates for their products or their coverage in the 3 percent slab. The increase in the proportion of deemed credits (without excise documents) from 40 percent to 60 percent in respect of goods having a rate of 18 percent or more is a welcome development although this was widely expected for all rates categories.

Businesses should immediately move to the fifth gear and get prepared for GST - this would entail major supply chain changes together with inventory and pricing decisions. Since GST works on the presumption of a connected system across the supply chain, any lack of preparation by any business would deprive them of the benefits.

The finalization of the rates in respect of the few items that were not finalized together with the reiteration that 1 July is the GST rollout date is a clear message for all businesses who are not prepared that they run the risk of not being part of the GST ecosystem, if they do not immediately shift to a higher gear.

Suresh Nair, Tax Partner, EY

Inspite of a near vertical division, the GST Council manages a consensus on rate of tax on gold at 3 percent. This adds on to another new tax rate under GST regime. It would be interesting to watch the trade community's reaction in the transition phase given that the GST rate in most states could be higher than the overall current effective tax rate on gold. States with higher VAT rate would be hopeful of compensation from the Centre to bridge the gap, if otherwise not taken care of.

It is a welcome move by the GST Council to clarify on the tax treatment for sales to Canteen Stores Department. There is now confirmation on the quantum of GST refund available for such transactions. It was important for industry to analyse the exact impact thereof.

Sachin Menon, Partner and Head, Indirect Tax, KPMG in India

The GST council did a sensible job in fixing the rate of gold, silver and diamonds at 3 percent and rough diamonds at 0.25 percent. The move clearly indicates that GST Council has been considerate of the industry's concerns. A higher rate would have enhanced tax evasion and smuggling.

It is indeed a welcome step that the GST council increased the availability of input credit limit without excise duty paying documents for stock held on the date of introduction from 40 percent to 60 percent, in case of goods attracting 18 percent or more GST. With this move, dealers need not return their pre-GST stock as their concern over loss of credit mostly stands addressed.



A welcome relief has been granted by the GST Council to the textile industry as most of the textile and yarn is taxable at 5 percent, except ready-made garments which has been kept in the 12 percent bracket.

The finalization of the GST return forms will provide certainty for making requisite changes in the IT system. However, government cannot keep changing the APIs frequently, as the industry needs sufficient time to factor such changes in their IT system.

Rajeev Dimri, Leader, Indirect Tax, BMR & Associates LLP

The GST Council meeting concluded with reinforcement of implementation of the reformative indirect tax regime from 1 July, 2017. Significant progress was made with key GST rules on transition and returns being finalized, along with return formats.

Although formats require detailed analysis for determining overall impact, it appears that these have been simplified to ease compliances for taxpayers. The fFinal rates would be notified under the statute subsequently, but fitment of goods under GST tax slabs were announced across items like textile, garments, footwear, gold, packaged food items, etc. It has been confirmed that a committee would be set up for monitoring the anti-profiteering element. Detailed rules on these aspects may also emerge later.

With assurance from state finance ministers and the GSTN on the readiness of implementing GST ready from 1 July, the onus now lies on the industry to prepare. Adequate information is now available in the public domain vis-à-vis return formats and rules. Thus it is critical for the industry to gear up their IT systems for meeting reporting requirements for filing returns on the GSTN portal. Although there is no update regarding increase of deemed credit from 40 percent, planning business transition to GST with the help of transition rules should now be on the agenda for all businesses.

Abhishek Jain, Tax Partner, EY

The Revenue Secretary has stated that accounts and record rules and e-way bill rules is to be taken up in the next GST Council meet on 11 June. With the go-live date still being 1 July, the industry will have very limited time to gear up and be ready with these requirements.

Clarity is still awaited on the treatment of deemed exports and the refund procedure for supplies from excise free zones. The industry is keenly awaiting guidance and rules around the same.

The Finance Ministry made a limited statement that the GST Council will set up a committee to look into complaints regarding an anti-profiteering clause. Thus clarity on how anti-profiteering provisions would be implemented at the ground level still remains elusive in the absence of detailed rules on the subject.

The relief on transitional stocks is welcome. Though it may not completely address the concerns of the industry on account of loss that they would suffer on transitional stocks, the quantum of loss would be reduced.

Aditya Pethe, director, WHP Jewellers

Currently the industry pays taxes around 2 to 2.5 percent, so 3 percent is almost as good as no impact. With this taxation, many unorganised players will be encouraged to enter the organised trade.

Nitin Khandelwal, chairman, All India Gems and Jewellery Trade Federation

This is a landmark day for the jewellery sector as the government rightly kept the overall tax burden low in the industry, keeping in mind the unique characteristics of the gems and jewellery sector, the kaarigars and small jewellers. In fact, this move will encourage the industry to become more organised and transparent.

Divyesh Lapsiwala, Tax Partner, EY

The formats of return have been changed significantly. Taxpayers will have to review all the revised requirements in detail to make sure that no new data elements are required (as compared to the older formats). This will mean that taxpayers will need a longer lead time to get ready for compliances. With the go-live date continuing to be 1 July, tax payers will have to work overtime to deliver this revised expectation.

Harpreet Singh, Partner, Indirect Tax, KPMG in India

Textiles today attract multiple excise rates which depend upon the type of fibre (cotton vs man-made fibre), price (garments above or below Rs 1,000), product (fabrics vs garments) and branding (branded vs unbranded garments). As regards VAT, most of the items are exempt from tax or attract tax at 5 percent.

The GST Council has decided that under GST, jute and silk would attract nil rate, all categories of yarn would be taxable at 5 percent (excluding man-made yarn which would be liable to 18 percent) and fabrics of all categories would be liable to a tax at 5 percent. Also, with regards to ready-made garments it was decided that the GST rate would be 5 percent if the price is less than Rs.1,000 and 12 percent where the price is more than Rs 1,000.

With this structure, the Government has done a decent job by reducing the multiple categories of rates and keeping the rates close to the current effective tax. Also, input tax credit has been allowed (but no refund in case of excess credit), which is good news. The most desirable situation would have been to have one flat rate for all categories. However, let’s not allow ‘best’ to be the enemy of ‘good’ and try and proceed with whatever ‘good’ the government has done so far.

The 3 percent GST rate for gold and gold jewellery though would result in a slight increase of about one percent additional tax, but at the same time the dealers would be able to take input tax credit, which is an upside. Overall, I think the government has done a good job by not changing the rate drastically, as gold is a sensitive item.

The only downside is that the special rate for gold has created a new GST slab of 3 percent. This could open a floodgate of demands by various industries to say that their product is also special and perhaps therefore, deserves a new category of GST rate.

The footwear industry currently attracts excise duty of 12.5 percent and VAT is levied at 5 percent. Further, footwear with an MRP of less than Rs 500 is exempt from excise. Now with GST rate of 18 percent on all footwear above Rs. 500 and at 5 percent on footwear less than Rs 500, the industry sentiment would not be upbeat.

After detailed discussions on taxation of biscuits, the GST Council finally decided on a GST rate of 18 percent on all categories of biscuits. This was little surprising, as like footwear and textiles, this industry was also expecting two rates --  i.e. a lower rate for cheaper biscuits used by the aam aadmi and a residual higher rate for costly cookies meant for the elite class. This GST rate definitely appears to be on the higher side. Also, with cut throat competition in this industry and thin margins, it is likely that the impact of rate increase is passed on to the consumer. Therefore, eat all your cookies before 1 July or change your taste buds and shift to other confectioneries.

Archit Gupta, Founder & CEO,

The council meet paves way for a GST roll out on 1 July. All the states have agreed unanimously and GST will be a reality from 1 July. GSTN faces a challenge to deliver a robust IT infrastructure conducive for a compliance regime which is considered the biggest in this world. The systems will have to scale to manage billions of invoices and reconciliations.

Praveen Khandelwal, Secretary General, Confederation of All India Traders (CAIT)

India is moving towards adoption of its largest indirect tax reform and to ensure its seamless implementation, we call upon the government to declare first nine months of GST implementation as ‘trial period’ since there are still a large number of traders and small businesses who have yet to adopt computerisation.

Though CAIT is actively involved in promoting computer technology among the trading community, it is imperative upon the government to bring a policy to support traders to embrace technology if GST has to be an absolute success. A mega campaign in support with trade associations across country will be a game changer. Much preparedness is required at the level of traders. There are a large number of traders who are unaware how technology will operate in business under the GST regime.

Allowing input credit on excise paid stock is a welcome step as it will restrict any likely inflation of prices. Currently this facility was not available to dealers not registered under the Excise Act. However, placing more than 15 percent goods under 28 percent may prove regressive as this slab was created only for luxury products and demerit goods.

(With inputs from Reuters, PTI, IANS)

Updated Date: Jun 04, 2017 11:48 AM

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