Gold key to lower GST rate

The Centre is set to propose that the rate of tax on gold consumption be doubled under the Goods & Services Tax (GST) regime so as to allow the GST council the elbow room to set a lower standard GST rate.

Intention behind such move:

To protect their revenues, States had sought that the standard GST rate, which will fall on the bulk of goods and services, be fixed at 20% or higher. According to the government, increase in revenue from gold consumption will provide the necessary cushion for the standard GST rate to be fixed at a level lower than 20%.

Background:

The proposal is based on last year’s recommendation from a government committee headed by Chief Economic Advisor Arvind Subramanian. 

• The panel had suggested taxing gold and other precious metals at rates ranging between 2% and 6%. This, the panel had argued, would protect the revenues of the States even if the standard rate of GST was pegged below 20%.

Present scenario:

At present, the Centre and States tax precious metals at rates between 1% and 1.6%. Currently, about 70% of goods and services get taxed at an average rate of 27%.

Is it a good move?

Yes, say few experts. It is because in a system in which the rate on gold was kept low and the standard GST rate was high, poor people end up subsidising the gold consumption of the rich. Gold is also an item which is prone to tax evasion, being a very high-value item.

• Also, the higher tax rate proposed for precious metals actually subsumes many hidden taxes on them and brings many parts of the jewellery industry so far outside the tax net into the tax base.