After major representations by the Gem & Jewellery Export Promotion Council (GJEPC) and the All India Gems & Jewellery Trade Federation (GJF), the Indian government announced that the previously-announced Goods and Services Tax (GST) rate of 18 percent on outsourced production, would now be reduced to 5 percent.
The GJEPC, which represents India’s gem and jewellery export-production sector, had argued that the processing of diamonds, particularly the small sizes and cheaper qualities, was frequently outsourced to jobbing units and an 18 percent tax on it (which would have to be reclaimed in a refund process after the finished goods were exported) would end up blocking an unmanageably large proportion of the working capital of diamond processing firms. In addition, the polished diamonds would also attract a 3 percent GST rate on their sale to either a wholesaler or retailer, thus significantly degrading the final product’s price-competitiveness.
The GJF, which is the apex body of the jewellery retail industry in the country, maintained that vast majority of jewellery in India is outsourced for fabrication to karigars or artisans, with the labour costs being billed to the end consumer. The 18 percent tax would simply have increased the burden on consumers and, as with diamonds, would have made the product category significantly less price-competitive in a market where jewellery had to increasingly vie for market share with a raft of other goods and services.
Outsourced fabrication charges, or “making charges” as they are called in the country, which can be as high as 10-12 percent of the price of the gold used, are currently untaxed. The proposed 18 percent GST rate would have doubled to 4 percent, the tax burden on the consumer, who now pays a 1 percent VAT as well as a 1 percent Excise Duty.
Indian Finance Minister Arun Jaitley had announced that the GST Council had received 133 representations regarding the applicable tax rates. The Council had considered all of them and decided to reduce the rate in 66 products and services.
https://www.gemkonnect.com/news/india-cuts-gst-outsourced-diamond-jewellery-manufacture-5