What GST means for the jewellery sector
The GST (goods and services tax) rate on gold jewellery is fixed at 3%. While it is higher than the earlier tax on gold, the GST rate is lower than expectations of a 5% rate and that is a relief.
GST implementation is expected to be positive for jewellery companies in the organized market such as Titan Co. Ltd. Analysts expect GST to improve higher tax compliance, which will result in a level-playing field for the organized market.
This is expected to reduce the price differential versus unorganized firms, which in turn is likely to result in market share gains for companies such as Titan and support their earnings growth.
The impact on the unorganized sector will be one factor to watch for from a medium-term perspective.
According to an analyst, one parameter to evaluate that progress would be to track market share gains that organized companies make. Titan’s September quarter update said, “The market share gain in the jewellery business continued unabated despite some slowdown in the month of July as a consequence of the advancement of sales that we saw in the second half of June (in anticipation of GST).”
What also needs to be seen is whether the shift from the unorganized market to the organized one has accelerated. Nonetheless, it will be a while before one can assess the exact change.
Separately, in August, the government notified the applicability of the Prevention of Money-Laundering Act to the jewellery industry. Under this, jewellers are obligated to collect KYC (know your customer) documents for all sales above Rs50,000 and also file certain returns. Analysts fear this will have an adverse impact on gold jewellery.
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