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Economic Survey indicates high tax on gold to continue

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Jewellery sector will be most disappointed if no relief comes from Budget, especially after note ban

Economic Survey for 2016-17 has indicated that implicit subsidy for gold is still too high and it mostly goes to the middle class. Market
participants say that this indicates that government is looking to have higher tax revenues from gold.

Survey notes that the calculations of implicit subsidies for the middle class, which forms top 40 per cent population, is estimated based 
on expenditure distribution as per NSS data of 2011-12

LPG subsidy for this class has been estimated at Rs 28,219 crore for 15-16 and for gold it has been estimated at Rs. 10,800 crore which is 
0.08 per cent of GDP. Surendra Mehta, secretary, Indian Bullion and Jewellers Association said that, "indications from the survey which says 
that implicit subsidy on gold is still high is building a case for GST rate higher that 4 per cent". Going by survey indications, he doesn't
think there will be reduction in customs duty as expected by most market participants.
graph

During last budget government announced 12.5 per cent excise duty and with input credit it comes to 1 per cent but Survey still says that 
effective subsidy on gold is 6 per cent and subsidy on gold is more than subsidy on Railways. While it does agree that the jewellery sector 
was most affected after demonetisation but maximum loss of jobs are also in this sector.

Implicit subsidy is effective subsidy rate multiplied by consumption of gold by middle class. Government has been saying that, "it must get
18 per cent tax on gold but they get only 12 per cent (10% import duty plus 1% excise plus 1% VAT)".

Jewellery sector has been already passing through a bad patch since last one year due to low demand and will be most disappointed if no relief
comes.

01st FEBRUARY, 2017, BUSINESSS STANDARD,NEW-DELHI

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