Nominated banks have stopped taking fresh orders for import of gold, as they seek clarity on the GST treatment of these imports. Banks are waiting to take orders after 1st July 2017, when the new GST regime kicks in and there will be a better understanding of the new tax structure.
The business head of global transactions, banking and precious metals, Kotak Mahindra Bank, stated that banks have reported “issues” (on the basis of GST clarity) to the government through several bodies in the industry, such as India Bullion & Jewellers Association (IBJA).
The temporary freeze on gold imports has not created a crunch in supply, as the monsoon season does not usually pose high demand for gold. During this time, farmers and rural households that rely on agriculture use funds for buying crop inputs for sowing of Kharif crops.
Presently, bullion banks import gold on consignment basis and they reduce 1% VAT when the consignment is sold to bullion dealers. Under the new GST system, they will be required to pay 3% tax to the government.
So, if a bank imports a consignment at $1,260 per oz., it would pay GST of 3%, i.e., $37.8. At the time of sale, if the gold price drops to $1,240, the amount it recovers from a customer will be lesser.
Owner of a southern gold refinery, James Jose, mentioned that there is no clarity on the proceedings regarding GST credit for banks if gold prices fall. So, banks prefer to wait till the GST regime is implemented to initiate fresh imports.
Jose also stated that although fresh bullion imports from banks have been put on hold, raw gold imports have doubled and reached around 20 tonnes per month.