A near-term supply bottleneck stares at the gold trade in its face till the government clarifies an issue faced by banks importing bullion on account of GST, says an official of India Bullion & Jewellers Association (IBJA). India on an average imports 600-800 tonnes of gold annually. This is imported on a consignment basis by nominated banks and agencies like MMTCBSE 1.62 %, PEC, HHEC, which on-sell this to bullion dealers.
Under the current tax regime, the bank pays (or recovers) 10 per cent import duty on a consignment. Value added tax is charged only when a nominated bank or agency sells the gold to a bullion dealer. However, under GST, which subsumes VAT and excise, the bank will have to pay new indirect tax of 3 per cent of the consignment’s value at the time of import.
This will increase the working capital requirement for banks’ gold consignment business — to 13 per cent from 10 per cent — and may deter them from importing gold on their own account. They will import only on back-toback orders they get from clients and no more. “Supply disruptions cannot be ruled out unless the government clarifies that it would apply the same treatment prevalent under the current tax regime to when GST is implemented,” said Surendra Mehta, national secretary, IBJA.
IBJA is sending a representation to the finance ministry requesting that the same tax treatment be extended to GST. “We are hopeful of getting this issue clarified,” Mehta said. “This (GST) will increase the working capital requirement on the consignment business for banks,” said Shekhar Bhandari, business head (global transactions & precious metals), Kotak Mahindra Bank.
However, he ruled out any supply disruptions because of the new rules.