Gold traders wary of GST gold tax

THIRUVANANTHAPURAM: The GST regime has struck fear in the minds of gold merchants in the state. The rate of five percent recommended by finance minister Dr Thomas Isaac, it is felt, would push up prices affecting business. There is also the concern that a higher tax rate, and the consequent increase in prices, would be a disincentive to savings, as gold is seen as the most ideal savings instrument.

Right now, traders who have opted for the compounding system in effect have a tax of 1.25 per cent and those outside the compounding net are slapped 5 per cent, the highest in the country. Perhaps the biggest fear is that gold traders will be at the mercy of tax officials. “Compounding virtually shields us from the whims of officials. We only have to increase our taxes by a specific percentage every year and no one bothers us,” said advocate S. Abdul Nazar, the secretary of All Kerala Gold and Silver Merchants’ Association.

Under GST, there will be no compounding. “With compounding gone, our concern is that officials will make frequent raids on our premises in the guise of checking our records,” he said. The finance minister, however, said that such fears were misplaced. “Most of these gold retailers are computerised and by the end of the year we will have a system where their computes will be connected to the main server at the Commercial Sales Tax Department. So whenever they issue a bill it will be simultaneously uploaded in our server. Raiding shops will then become unnecessary,” he said.

B. Girirajan of Bhima Jewellers said that a GST rate above one per cent would lead to a spurt of smuggling. “In fact, the tax has been kept low to pre-empt the malaise,” he said. Mr Girirajan also felt that it would also affect gold business in the state. However, both the state and the Centre are not keen to promote gold as a savings medium. Earlier, there were few savings instruments. But now new financial inclusion initiatives like Jan Dhan Yojana is also serving as an effective means of promoting savings. Further, as the finance minister put it, “large gold purchases and imports becoming a cause of macro-economic instability”.