India will replace its complex tax code with a simplified Goods & Services Tax (GST), applicable nationwide. The World Gold Council has a report out on the planned changes Thursday, writing that it may have an impact on the precious metal, but ultimately it’s for the best.
The Council calls it the biggest financial reform since India’s liberalization more than 20 years, and while gold consumers will face a higher tax rate (the 10% customs duty isn’t affected, the 1% excise duty, and 1.2% VAT will be replaced with 3% GST), that’s lower than many feared.
The industry will face an adjustment period for sure: Both manufacturers and retailers will see some of their working capital tied up in inter-state gold stock transfers and small-scale artisans and retailers may find it difficult to comply with the new tax. Meanwhile consumer demand in the short-term may take a hit because of the higher tax–or some transactions may just go underground, to avoid the tax
Yet, the Council still expects the news to be ultimately a positive, as it makes the supply chain for gold more transparent and efficient.