It all began from the April 1 curbs that stopped cash purchases of precious metals in India, a habit widely seen in most local jewelry stores. The curb came with high tax rates on goods services, and wearisome GST compliance rules regarding registration credentials of thousands of independent merchants dealing with gold ornaments, which are now proving to be the major dissuasions in the industry.
With the curbs affecting paying through cash for metals beyond Rs 20 lakh, not only precious metals are affected, but many other sectors of the economy will be impacted considering that 60% of the population which mainly depends on agriculture don’t pay income taxes and prefer cash when handling their agricultural produce.
Also, since Merchants are only getting used the government’s move to allow electronic payments for online dealers e.g. credit card processing for the precious metal merchant accounts which you can create with EMB, the curbs on cash deals and high services rates for the use of credit cards is proving to be a major setback. Jewelers fear GST tax at rates could shoot much higher than the present VAT rates.
While all are for promoting digital payments, the high service fee of 1-3% by credit card service providers seems to be eating into the dealers’ earnings on a net level. Such charges must drop to favor traders. With 25% of all jewelry sales in India still done using cash, we still expect a long-standing blow on the industry volumes.
And just recently, sales were already down 20% from the normal levels, since the use of cash was implemented. In addition to battling demonetization, the jewelry industry is burning the midnight oil to offer several requests to the government to lower GST rates by keeping it closer to the VAT rate of 1%.
Unless the GST rates are kept reasonable, there are risks of non-compliance by dealers and resistance by buyers to pay high taxes. A GST rate of 4-6% against the 1.25% based on the VAT rate of 1% will only bring more chaos in the industry.
For Artisans looking to charge up to a maximum threshold value of Rs 20 lakh, the jewelry needs to be registered. The new rules prohibit such payments made to individual sellers but allow a head artisan to receive payments and sort out the several merchants working under him in each particular fields of jewelry making. Also, it would be of great benefit if this limit is raised to Rs 50 lakh. If only the government would see the curb and the new GST rules like the merchant does then a change would make the precious metal business much better.