Next on GST’s radar is the gem and jewellery sector

The gems and jewellery sector plays an important role in Indian economy. From being a major foreign exchange earner to a significant contributor of country’s GDP (6-7%); it is one of the thrust areas of export in India.

The government has given various fiscal incentives so as to boost the growth of the sector like tax holidays extending up to 15 years (as per SEZ Act 2005), gold monetization policy and various concessions and exemptions including excise duty, countervailing duty (CVD), and special additional duty (SAD). In addition, the taxes as levied by the state government are very low and usually don’t exceed 2%.

However, with GST to be implemented soon, the scenario is likely to change. According to the proposed GST regime, the state taxes on the gem and jewellery sector are likely to go up to 2-6% thereby bringing a significant increase in the rate structure burdening the companies associated.

Not only this, but supplies are also proposed to be taxed which will further hamper the industry. Currently, supplies are not the basis of taxation, so transactions during testing, certification etc are not taxed but now they all will be taxed. This would lead to valuation issues and requirement of high working capital.

This increase in tax burden due to GST will adversely affect the overall profit and exports of the companies and will hence deter new investors from investing money in the sector.

The only advantage GST is likely to have is that it will bring some order into this rather unstructured sector by bringing all the unorganized players into the tax net.

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