GST To Benefit Organised Jewellers But Not The Standalone Stores, Says Credit Suisse

Goods and Services Tax will benefit organised jewellers in the country, but not standalone stores, said brokerage house Credit Suisse. The impending indirect tax regime will pave the way for a simpler tax structure for jewellers replacing multiple taxes and duties with a flat 3 percent tax.

Advertising and rental costs will also be considered while calculating the input tax credit received by jewellers, a clear benefit for the organised sector. Credit Suisse expects the topline to improve by as much as 5-10 percent.

The unorganised sector may face "regulatory headwinds" as the next tax regime will leave a trail of their purchases and transactions, starting from the bullion dealers. Nearly 30 to 35 percent of India's gold purchases happen with consumers exchanging their old jewellery with new ornaments. The brokerage house does warn that a 'reasonable share of sales' will continue to remain outside the purview as recycled and smuggled gold.

Credit Suisse On India's Jewellery Sector:

• GST on jewellery: Fixed at 3 percent, in line with the current blended rates of approximately 2.5 percent.
• Service tax on advertising and rent: In the pre-GST regime, jewellery had a 1 percent excise duty which was with out any input tax credit.
• Purchase tax on recycled gold: In the pre-GST regime, companies had to pay 1 percent as purchase tax when they bought back gold from consumers in exchange. This 1 percent could not be offset against the final tax paid on jewellery. Thus, it was an additional cost.
• Margins: For companies such as Titan, exchange is now 40-45 percent of the gold purchase and thus this can be a 40-45 basis points saving
• Jewellery margins for Titan are close to 10 percent and this adds 10 percent to its EBITDA
• Provision: GST has a provision for not registering if the turnover is below Rs 20 lakh a year