The 3 percent tax on gold jewellery is not likely to cause any major disruption to the overall gold demand, ICRA said in a report.
“Gold jewellery demand is expected to be favourable over the near-term with an uptick in both the rural and urban demand. Rural consumption will benefit from favourable monsoon guidance, which will likely cause a rise in minimum support prices, rural employment guarantee scheme and farm loans waiver in few states,” ICRA Vice President and Co-Head, Corporate Ratings, K Srikumar said.
He said that the urban demand will gain traction from rising income levels, pay revision for state government employees and pensioners and favourable demographic spread.
The government announced a 3 percent tax on gold jewellery, in line with the 2-6 percent rates indicated earlier in the draft Goods and Services Tax (GST) rules.
Under the present tax regime, jewellery retailers have levied a VAT of 1 percent in most states (except in Kerala, where 5 percent Value Added Tax (VAT) is levied) on sales and an excise duty of 1 per cent is levied on the input side.
Post-demonetisation and regulatory restrictions, ICRA said there was churn in the market share of unorganised retailers who were affected by liquidity squeeze and higher compliance costs