GST Council Increases Tax Slabs To Six To Accommodate Gold & Diamonds

Rates of items such as gold, footwear, garments, beedis, and biscuits were finalised by the GST Council on Saturday.

Gold bangles sit on a tray inside the Dwarkadas Chandumal Jewelers store in the Zaveri Bazaar area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
Gold bangles sit on a tray inside the Dwarkadas Chandumal Jewelers store in the Zaveri Bazaar area of Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The Goods and Services Tax (GST) Council on Saturday made another stride towards the July 1 implementation of the new indirect taxation regime as it finalised transition rules, return filing rules, and the rates of a few remaining items.

The Council finalised rates of items such as gold, diamonds, fabric, fibre, footwear, apparel, biscuits and beedis, said Union Finance Minister Arun Jaitley at a press briefing after the 15th meeting of the GST Council in New Delhi.

  • Gold, gold jewellery, silver and processed diamonds will be taxed at 3 percent.
  • Rough diamonds will carry a nominal rate of 0.25 percent
  • Beedi leaf will have a rate of 18 percent, while beedis will be taxed at 28 percent without any additional cess.
  • All biscuits will be taxed at 18 percent
  • Footwear priced below Rs 500 will be taxed at a 5 percent rate, while all other footwear will have a rate of 18 percent.
  • While food items are exempt, packaged foods with a registered trademark will be charged at 5 percent.
  • Puja items, like handmade matches, have been kept exempt.
  • Agricultural machinery, which has two categories, will carry rates of 12 percent, and five percent each.
  • Readymade garments will be taxed at 12 percent, with apparel priced at less than Rs 1,000 being taxed at 5 percent.
  • Natural yarn and natural fabrics will carry a 5 percent rate
  • Manmade textiles would carry an 18 percent rate.

“We are quite confident of sticking to the target date of July 1,” Jaitley said, adding that the next GST council meeting would be held on June 11.

Top finance ministry officials attending a press conference following the 15th GST Council meeting. (Source: Ministry of Finance)
Top finance ministry officials attending a press conference following the 15th GST Council meeting. (Source: Ministry of Finance)

Industry Speak

Gold, Jewellery
Industry experts, by and large, were satisfied by the 3 percent tax rate proposed on gold, versus the current rate of approximately 2 percent. Though Sanjeev Agarwal, the chief executive officer of Gitanjali Gems Ltd. pointed out that pricing would be impacted and “some portion of the same would be passed on to customers”.

The World Gold Council lauded the decision to tax gold at 3 percent, but added, that with a customs duty of 10 percent the total tax incidence on the precious metal is still high.

This may be an opportune time for the government to cut the import duty and bring down the total tax on gold significantly lower so unauthorised imports are totally eliminated and industry embraces transparency in letter and spirit under GST.
Somasundaram PR, Managing Director, India, World Gold Council

However the nominal 0.25 percent tax on rough diamonds was termed a “retrograde step” by Praveenshankar Pandya, chairman of the Gem and Jewellery Export Promotion Council.

Diamonds are the key raw materials for gem and jewellery exports business. Rough diamonds have been kept out of the purview of taxes even in various Asian countries which are globally competitive. It is difficult for gems & jewellery exporters to pay 0.25 percent and then initiate process for refunds, etc.
Praveenshankar Pandya, Chairman, Gem & Jewellery Export Promotion Council

Consumer Goods: Biscuits and Footwear
Biscuit manufacturers have expressed deep disappointment that the GST Council decided to tax all biscuits at 18 percent. Mayank Shah, the category head at Parle Products Ltd. said this rate was unfair on the weaker sections of society.

If you look at the effective tax rate earlier, biscuits below Rs 100 per kilogram were somewhere around 8 percent or so, versus biscuits above Rs 100 per kilogram which was around 12 to 14 percent. Now you are going to tax both of them at 18 percent. So, the prices of both categories are going to go up.
Mayank Shah, Category Head, Parle Products

Pratik Jain, tax expert and partner at consulting firm PwC, expressed discontent with the rates set for biscuits and footwear.

...there seems to be a disconnect between the calculations of current effective taxes done by the industry and the government, particularly in sectors like biscuits and footwear. It is important that the government relooks at this in the next meeting scheduled on June 11.
Pratik Jain, Indirect Tax Leader, Partner, PwC

Prices of footwear are expected to go up by 5 to 10 percent according to Adesh Gupta, CEO of Liberty Shoes Ltd., who called it a "black day" for the industry.

GST rate is indeed disappointing for the entire industry. It is like a black day for the industry. I suspect in the next one month time, there will be pressure on the prices on the consumer because the prices may go up by 5 to 10 percent.
Adesh Gupta, CEO, Liberty Shoes

Yarn, Textile, Apparel
Textile company Indo Count Ltd. said the 5 percent rate on yarn and fabric was expected. But, added, there will be some increase in prices.

Similarly, the tax rate set for readymade garments is bound to have an inflationary impact as the current rate on branded clothes is 2 percent, said Thomas Varghese, the business head of textiles, acrylic fibre and overseas spinning at the Aditya Birla Group.

If you look at the fabric, it will be taxed at 5 percent where there was no tax earlier. So, while they will get a set off of 5 percent, there is still residual charge of 7 percent which is extra.
Thomas Varghese, Business Head-Textiles, Aditya Birla Group.

Rajesh Jain, managing director and chief executive officer of Lacoste India, said that the tax rate of readymade garments looked “reasonable”, but considered it a negative for those importing products.

Retailing companies that buy from manufacturers in India may not have to take price hikes, but those importing their products will have to take price hikes.
Rajesh Jain, MD and CEO, Lacoste India.

Return Filing And Transfer Provisioning Rules Approved

The GST Council, earlier in the day, had approved the rules regarding transition and return filing under the new tax regime, Jaitley said.

Transition Rules
The transition rules state that if the current tax rate of an item is 18 percent, then credit will be given for 60 percent of the Central GST or the State GST, according to Revenue Secretary Hasmukh Adhia.

For items taxed below 18 percent, a 40 percent credit will be given, he added.

Sachin Menon of KPMG India welcomed the transfer provisions, adding that this will address dealers’ concerns over loss of credit.

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

Return Filings
The council also revised the format of return filings. Tax experts say the changes are substantial and will need corresponding changes to technology systems.

“Taxpayers will have to review all the revised requirements in detail to make sure that no new data elements are required”, said Divyesh Lapsiwala, tax partner at Ernst & Young, adding that taxpayers would need a longer time to get ready for compliance now.

Finalization of the GST return forms will provide certainty for making requisite changes in the information technology system. However, the government cannot keep changing the APIs frequently, as the industry needs sufficient time to factor such changes in their IT systems.
Sachin Menon, Partner and Head, Indirect Tax, KPMG 

GSTN Preparedness

The GST Network (GSTN), which is to form the information technology backbone of the new tax regime, is confident that it is ready to take on the July 1 implementation, according to Jaitley.

He explained that the GSTN made a detailed presentation to the council with regard to the amount of work done till now, and the IT preparedness. He added that the members of the council raised several issues questioning the GSTN, to which it responded.

West Bengal Finance Minister Amit Mitra, however, strongly disagreed on GSTN’s preparedness for a July 1 rollout.

“...the GSTN presentation today made it transparent that they are really not ready for a rollout...,” he said. He added that GST is completely based on the digital platform of GSTN and if that is not secured, it can affect the complete system. Mitra has been of the view that a July 1 implementation deadline is not feasible.

Anti-profiteering Provision
Jaitley said that the GST Council has decided to set up a committee to hear complaints regarding the implementation of the anti-profiteering provision. But tax expert Abhishek Jain of Ernst & Young was not enthused by the limited the clarity provided on the scope of the committee.

The Finance Ministry made a limited statement that the GST Council will set up a committee to look into complaints regarding 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.
Abhishek Jain, Tax Partner, EY