THIRUVANANTHAPURAM: Finance minister Dr T. M. Thomas Isaac's aggressive push to get gold taxed at five per cent under GST might have been worn down by intense lobbying but the State Finance Department still expects, even at a GST rate of three percent GST, more revenue from gold for the simple reason that compliance will improve under the new regime. Last fiscal, the state collected Rs 650 crore from gold. Under GST, the expectation is Rs 1000 crore. Right now, gold, silver and precious metals face no central excise and most States tax these commodities at the non-standard rate of one per cent. Kerala is the only exception; here dual taxation is in vogue for gold.
For those who have opted for compounding, nearly 75 percent of gold traders in the state come under this segment, the effective tax works out to just over one per cent. Under GST, the compounding system goes. The traders who have turned their backs on compounding are charged five per cent, the highest in the country. The GST council ended up fixing three percent for gold and silver products. Here is Dr Isaac’s rationale for demanding a high 5 percent rate.
“I don’t think gold is a necessity, it's a luxury,” Dr Isaac said. Statistics back Isaac’s ‘luxury’ argument. The top two deciles, the country's topmost elite, account for over 80 per cent of total gold consumption. The lowest two deciles account for not even one percent of gold consumption. This means, the subsidy gold enjoys, granted mainly to prevent smuggling, is virtually appropriated by the rich. The gold retailers, though they will have to pay more than under the compounding system, seem relieved.
“Dr Isaac had fought tooth and nail for 5 per cent. In that sense the 3 per cent now fixed is reasonable,” said advocate Abdul Nazar of All Kerala Gold and Silver Merchants’ Association. Nonetheless, he feels that gold retailers will have to put up with more raids by tax officials. “It was to avoid such constant harassment that Kerala had introduced the compounding system,” Mr Nazar said. Finance Department officials, though not enthusiastic about the new gold rate, are of the view that compliance would improve under the GST regime. “If a dealer has to get the input tax credit, he will have show the bill of purchase,” a source said.