Following a vertically divided opinion for taxation of gold under the Goods and Services Tax (GST) regime, the GST Council, which had decided to fix the tax rate on gold at 3 per cent, may consider increasing the rate over the years, the target being to reach the rate of 5 per cent. Sources said that the Council, having representatives of both states and Centre, was divided regarding the rate of GST on gold during the discussion in the fifteenth GST council meeting held on June 3. After much deliberations, a consensus for a rate of
3 per cent was agreed upon along with a view to consider raising the rate to 5 per cent in the coming years, they said. As many as fifteen states/UTs supported the proposal to tax gold at 5 per cent, while around 14 states explicitly expressed their support for 2 per cent tax rate for gold under the GST regime. States such as Kerala, Goa, Odisha, Assam and Madhya Pradesh supported a 5 per cent GST rate for gold, while other states such as Gujarat, Delhi, Uttar Pradesh, Rajasthan, Telangana and Punjab were in favour of 2 per cent tax rate, sources said.
Kerala is learnt to have said that gold is not an item of consumption by poor people and it need not be treated as a special item to be taxed at a low rate, while Bihar had stated that a low rate for gold was not desirable as it is a means to hoard black money. Delhi had supported 2 per cent tax rate, saying that the rate should be kept low in order to curb tax evasion. Finally, Gujarat is learnt to have suggested a compromise rate of 3 per cent citing the sector as a provider of large scale employment and one which attracts considerable investment.
Centre supported the views of Kerala and Bihar but also highlighted that higher tax rates for gold would lead to smuggling with the country’s annual demand for gold roughly amounting to be 1,000 tonne.
The difference in opinion amongst states for taxing gold was even acknowledged by finance minister Arun Jaitley, when after the June 3 meeting he said, “In case of gold, keeping various factors in mind, because there was an extensive debate and between 2 per cent and 5 per cent there was almost a vertical division and therefore, we finally reached a consensus of taxing gold and gold jewellery at 3 per cent.”
At present, gold jewellery has total indirect tax incidence of 2 per cent, with an excise duty of 1 per cent, without CENVAT credit and VAT rates for most states at 1 per cent except Kerala (5 per cent), Maharashtra (1.2 per cent) and Tripura (2 per cent).