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World Gold Council (WGC): GST May Cool Down Gold Demand

GST Dampens Gold Demand

WGC has stated in a report that the short-term demand for gold could be affected due to the increase in tax rate charged on gold in India. India is the world’s second largest gold consumer.

Gold has been trading near their lowest level in seven weeks due to a fall in demand for the metal in the country wherein it is used for several diverse purposes ranging from investment to wedding gifts.

“In the short-term at least, we believe (the tax) may pose challenges for the industry. Small-scale artisans and retailers with varying degrees of tax compliance may struggle to adapt,” the WGC said in a report published on 6th July.

The tax rate charged on gold jumped from 1.2% to 3% when GST was launched in India on July 1.

The industry fears that incidences of gold smuggling could spike following the tax increase as well as under-the-counter buying in the country where millions of people prefer to store their wealth in gold bullion and jewellery.

Moreover, the WGC also said that the government directive to ban cash transactions more than Rs. 2 lakhs from April 1 could hurt gold demand especially in rural areas. Farmers often purchase gold using cash and around two-thirds of gold demand in the country comes from rural areas.

“(The transactions rule’s) potential impact isn’t entirely clear: it could curb gold purchases; it could encourage gold shoppers to buy smaller amounts of gold spread over more transactions; or it could push a large part of demand underground and encourage a black market in gold,” said the WGC.

WGC kept its demand estimate for India for the year 2017 at 650 to 750 tonnes compared to the average annual demand of 846 tonnes in the previous 5 years.

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