India’s gold sector overhaul under GST shows determination to pursue financial reform
By Published: Jun 27, 2017 10:03 PM
India's gold sector is expected to undergo a complete overhaul under a new nationwide sales tax system, an important part of its long-awaited tax reform. The Modi government has been radical in pursuing financial reforms, and whatever the result is, the reformers' determination is still laudable given the size and diversity of the country.
A nationwide goods and services tax (GST) will come into force starting from Saturday, and it has been touted as the most sweeping tax reform since the country's independence in 1947. GST will replace a tangle of state and central taxes and unify the whole country into a single tax regime, which is expected to lift India's GDP by 2 percent, according to media reports.
Under GST, the overall tax rate on gold will be 13 percent, comprising 10 percent customs duty and 3 percent GST. This is slightly higher than the current tax level but lower than the previous expectation of 5 percent. The new tax policy on gold is generally expected to improve the transparency and efficiency of gold supply in India, which is estimated to see gold demand rise from the 675.5 tons in 2016 to between 850 and 950 tons by 2020, according to the World Gold Council (WGC).
As one of the world's largest consumers of gold, India is also reportedly working with the WGC on plans to establish a spot gold exchange. Some experts believe that as gold has been a big expense in India's import bill, the GST and the gold exchange are aimed at bringing the gold market and gold from households into the formal banking system, thus monetizing about 20,000 tons of gold stored at home. Yet, considering the traditional role of gold in India, whether such measures can yield the desired results will mainly depend on how the authorities implement the new policy and ensure compliance with it.
These efforts are all part of the government's wider financial reforms, and it should be admitted that the Modi government has been aggressive in pushing forward with the reforms, as evidenced by its drastic demonetization action.
In this sense, the upcoming tax reform - which has been under discussion for more than a decade in India due to the numerous obstacles in its way - is further proof of the government's determination, a necessary quality given the country's 29 states, 22 official languages and 9 million companies.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
A nationwide goods and services tax (GST) will come into force starting from Saturday, and it has been touted as the most sweeping tax reform since the country's independence in 1947. GST will replace a tangle of state and central taxes and unify the whole country into a single tax regime, which is expected to lift India's GDP by 2 percent, according to media reports.
Under GST, the overall tax rate on gold will be 13 percent, comprising 10 percent customs duty and 3 percent GST. This is slightly higher than the current tax level but lower than the previous expectation of 5 percent. The new tax policy on gold is generally expected to improve the transparency and efficiency of gold supply in India, which is estimated to see gold demand rise from the 675.5 tons in 2016 to between 850 and 950 tons by 2020, according to the World Gold Council (WGC).
As one of the world's largest consumers of gold, India is also reportedly working with the WGC on plans to establish a spot gold exchange. Some experts believe that as gold has been a big expense in India's import bill, the GST and the gold exchange are aimed at bringing the gold market and gold from households into the formal banking system, thus monetizing about 20,000 tons of gold stored at home. Yet, considering the traditional role of gold in India, whether such measures can yield the desired results will mainly depend on how the authorities implement the new policy and ensure compliance with it.
These efforts are all part of the government's wider financial reforms, and it should be admitted that the Modi government has been aggressive in pushing forward with the reforms, as evidenced by its drastic demonetization action.
In this sense, the upcoming tax reform - which has been under discussion for more than a decade in India due to the numerous obstacles in its way - is further proof of the government's determination, a necessary quality given the country's 29 states, 22 official languages and 9 million companies.
The author is a reporter with the Global Times. bizopinion@globaltimes.com.cn
