Goods and service tax implementation in jewellery sector: a comparative study on organised and unorganised traders in India

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The current study is intended to provide a comparative analysis of the beneficiaries in the implemented GST rate between organized and unorganized traders.

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International Journal of Management (IJM) Volume 9, Issue 3, May–June 2018, pp. 83–89, Article ID: IJM_09_03_009 Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=9&IType=3 Journal Impact Factor (2016): 8.1920 (Calculated by GISI) www.jifactor.com ISSN Print: 0976-6502 and ISSN Online: 0976-6510 © IAEME Publication GOODS AND SERVICE TAX IMPLEMENTATION IN JEWELLERY SECTOR: A COMPARATIVE STUDY ON ORGANISED AND UNORGANISED TRADERS IN INDIA Ashalakshmi. RK Associate Professor, MACFAST, Tiruvalla ABSTRACT GST implementation is expected to be positive for jewellery companies in the organized market. Analysts expect GST to improve higher tax compliance, which will result in a level-playing field for the organized market. This is a landmark for the jewellery sector as the government rightly kept the overall tax burden low in the industry at 3%, keeping in mind the unique characteristics of the gems and jewellery sector, the ‘kaarigars’ and small jewellers. 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. The current study is intended to provide a comparative analysis of the beneficiaries in the implemented GST rate between organized and unorganized traders. This paper also discusses the various factors that need to be taken into consideration by the jewellers and authorities to attract the benefits of implemented GST. Keywords: GST, Jewellery Sector, gold trade Cite this Article: Ashalakshmi. RK, Goods and Service Tax Implementation in Jewellery Sector: A comparative study on organised and unorganised traders in India, International Journal of Management, 9 (3), 2018, pp. 83–89. http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=9&IType=3 1. INTRODUCTION The main motive of conducting this study is to identify and discuss the various reasons behind the difference exist on the benefits received as per GST implementation are varying on organised and unorganised traders in Jewellery sector. 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).”With the 3-percent GST, now many more will be tempted to make unofficial purchases http://www.iaeme.com/IJM/index.asp 83 editor@iaeme.com
Goods and Service Tax Implementation in Jewellery Sector: A comparative study on organised and unorganised traders in India from small jewellers. The tax hike could also probable to encourage more smuggling into the world’s second-biggest gold consumer, which buys almost all its bullion abroad. Gold smuggling has been rife since India raised import duties on the metal to 10 percent in a series of hikes to August 2013, looking to curb demand to narrow a gaping current account deficit. The World Gold Council estimates smuggling networks imported up to 120 tonnes of gold into India in 2016. The country’s legal imports typically stand at around 800 tonnes of gold jewellery a year, with the metal used in everything from investment to religious donations and wedding gifts. A lower import duty would increase legal imports and ultimately legal sales will ultimately leads to increased tax revenue. The issue about taxation on gold was much debated and finally a rate of 3% is fixed. While the headline rate is slightly higher than the current taxes on gold and jewellery, it is much lower than what was feared initially. Previously jewellers’ pay 10% customs duty on gold and pay 1% excise plus 1.2% VAT over and above that. This effectively works out to 12.43% when buying jewellery and 11.32% when buying bars since bars do not attract excise duty. With the introduction of GST at 3% for gold and 18% for making charges, the effective rate comes to 15.67% when you include 10% customs duty. So, the effective price increase on gold jewellery comes to 3.24%. It is clear that gold is going to get lightly expensive for consumers in India. This is also because the government wants to discourage gold buying. Gold bars will be dearer by 1.98%, after GST while jewellery will be expensive by 3.24% compared to current levels. While there will be some initial reluctance, we believe jewellers will easily be able to pass down the incremental cost to the end consumer. In fact, this move will encourage the industry to become more organised and transparent. 2. LITERATURE REVIEW The GST rate for gold, gold jewellery, precious stones and precious metals is 3%. While purchasing gold jewellery or other gold items, the end consumer will have to pay 3% of the taxable value mentioned on the invoice. Since most gold sold in India is through offline mode, only SGST and CGST would be applicable on the purchase. If a gold purchase is made through an online platform and the supplier is based out of a different state, then IGST would be applicable. In addition to the GST, gold will attract customs duty of 10% and a gold making charges of 5%. Customs duty of 10% was levied prior to the implementation of GST. However, the GST on gold making charges has been introduced at 5% recently. Hence, the cost of gold and gold jewellery will be marginally higher in the GST era. World Gold Council Managing Director, India, Somasundaram PR said GST is the single biggest indirect tax reform in India and is intended to bring transparency, increase tax compliance and improve transaction traceability. He added that the government’s decision to apply 3 per cent GST on gold is an encouraging step in the current context to stabilise the industry and address the concerns of the millions employed in the industry. The statement of world gold council also states that with 10 per cent customs duty the total tax on gold is still high and will continue to have an impact on the jewellery industry. This may be an opportune time for the government to cut the import duty and bring down the total tax on gold significantly lower so unauthorised imports are totally eliminated and industry embraces transparency in letter and spirit under GST,” he said. India Bullion and Jewellers Association (IBJA) Director and PNG Jewellers CMD Saurabh Gadgil said the declaration of GST for the gems and jewellery sector at 3 per cent for gold articles and polished diamond and 0.25 per cent on rough diamond is very positive move by the government. It will boost the organised players and trade, it is also a boon for the consumer and the government will also benefit as more and more players will become organised by complying with GST. While some believe that the GST tax rate on gold and jewellery is http://www.iaeme.com/IJM/index.asp 84 editor@iaeme.com
Ashalakshmi. RK slightly higher than the previous tax rate, some are happy that at least it is much lower than what was feared initially. The literature review concludes with a win-win situation for everyone. 3. OBJECTIVES OF THE STUDY The primary objective of this study is to assess the impact and objectives preference of Goods and Service Tax (GST) on Gold Jewellary trade and on various factors that influence gold trade in India In line with this primary objective, the secondary objectives are as follows: i. To examine the effect of GST on inflation indices ii. To determine the impact of GST smuggling /black market trade of Gold Jewellary iii. To determine relationship between GST and market demand for gold jewellary iv. Formulate recommendations regarding GST, through comparison between organized and unorganized jewellary trade. 4. RESEARCH QUESTIONS This research study is poised towards providing answers to the following questions: (i) Do Goods and Service Tax have some implication in Gold Jewellary trade? (ii) Whether Goods and Service Tax have significant influence on factors such as demand, smuggling and inflation in the economy? 5. RESEARCH HYPOTHESES In order to answer the research questions and achieve the objectives of the study, the following hypotheses are advanced and will be tested in the course of this study. 5.1. Hypothesis 1 H0: There is no significant difference between implications of GST on organized and un organized Jewellary trade H1 There is significant differences between implications of GST on organized and un organized Jewellary trade 5.2. Hypothesis 2 H0: There is no significant positive relationship between objectives preference of GST between organized and unorganized jewellary traders H1 There is significant positive relationship between objectives preference of GST on organized and unorganized jewellary traders 5.3. Hypothesis 3 H0 Implementation of GST and market related factors such as demand, inflation and smuggling of gold jewellary are independent H1 Implementation of GST and market related factors such as demand, inflation and smuggling of gold jewellary are dependent 5.4. Hypothesis 4 H0: Factors such as demand, inflation and smuggling of gold are not significantly related among organized and unorganized traders http://www.iaeme.com/IJM/index.asp 85 editor@iaeme.com
Goods and Service Tax Implementation in Jewellery Sector: A comparative study on organised and unorganised traders in India H1: Factors such as demand, inflation and smuggling of gold are significantly related among organized and unorganized traders 6. METHODOLOGY The term methodology explains about the research techniques adopted and used for this study with the aim of achieving the research objectives. The research design include descriptive and survey research design. The theoretical population of the study consists of 100 respondents which include organized and unorganized gold jewellary traders Organised include retailers or jewellary owners and unorganized are the goldsmith who do business as part of their caste tradition. Random sampling techniques are used to select the gold jewellars. A simple random sampling technique was used to select a total of 100 samples which constitute 70 from organized retailers and 30 from unorganized retailers. 7. METHOD OF DATA COLLECTION Primary method of data collection was used in this study. The primary data consists of a number of items in structured questionnaire that was administered to 100 respondents. Data collected from the questionnaire were analyzed, summarized, and interpreted accordingly with the aid of direct percentage analysis, Chi-square test, Correlation and Garett’s ranking analysis. A separate percentage analysis was done for organized and unorganized jewellars. Chi-square was used to measure the discrepancies existing between the observed and expected frequency and to prove the level of significance in testing stated hypotheses. Correlation analysis gives a clear picture on the existing and average relationship respectively between different variables. Garett’s ranking helps prioritize certain variables in respondents’ point of view. 8. TOOLS AND PROCEDURES OF THE STUDY A. Analysis using percentages B. Data Presentation and Analysis using Chi-Square test C. Data Presentation and Analysis using Correlation Coefficient D. Data Presentation and Analysis using Garett’s ranking method 8.1. Percentage analysis based on demographic data The gender split between the respondents was 90 % males and, 10% females. With regard to their education levels the distribution was 20% undergraduate, 30 % graduate, 50 % postgraduate. 8.2. Chi-Square analysis To find out the significant relationship between variables the data were analysed using chi square test. i. Relationship with implications of GST on organized and un organized Jewellary trade ii. Relationship between objectives of GST between organized and unorganized jewellary traders. http://www.iaeme.com/IJM/index.asp 86 editor@iaeme.com
Ashalakshmi. RK Table 1 Relationship with implications of GST on organized and unorganized Jewellary trade O E (O-E)2/E 60 56 .28 20 24 .66 10 14 1.14 10 6 2.6 TOTAL 4.68 Table value of chi-square at 5% significance level for 2 degrees of freedom is 5.991. i. Since the calculated value is less than table value hypothesis1, H0 can be accepted and alternative hypothesis is rejected i.e. there is no relationship between implications of GST among organized and unorganized jewellary trade. The percentage analysis also in line with chi-square results shows that organized jewelers are more positive (about 86%) on implications of GST, but in unorganized sector only 66% are positive on GST. Table 2 Relationship between objectives of GST between organized and unorganized jewellary trade O E (O-E)2/E 1 2.5 .4 4 2.5 .9 5 5 0 5 5 0 2 1.5 .33 1 1.5 .33 3 3 0 3 3 0 4 3 .33 2 3 .33 6 6 0 6 6 0 Total 2.62 Table value of chi-square at 5% significance level for 6 degrees of freedom is 12.592 ii. Since the calculated value is less than table value hypothesis2, H0 can be accepted and alternative hypothesis is rejected i.e. there is no relationship between objectives preference of GST among organized and unorganized jewellary trade. The ranking analysis also goes hand in hand with chi-square result, shows that there is difference in the preference of traders. In organized sector transparency and increased tax compliance is on first and second preference. In unorganised sector increased tax compliance is the first preference and increased price the second preference. 8.3. Correlation Analysis Analysis using Coefficient of Correlation between Dependent Variable (DV) and Independent Variables (IV): i. Implementation of GST (IV) and market related factors such as demand, inflation and smuggling of gold jewellary (DVs). http://www.iaeme.com/IJM/index.asp 87 editor@iaeme.com
Goods and Service Tax Implementation in Jewellery Sector: A comparative study on organised and unorganised traders in India Table 3 Between implementation of GST and Correlation ‘r’ Demand for gold r=.869 Inflation r = .80 Smuggling of Gold r = .829 In this study, correlation analyses were applied for one to one relationships. Results of correlation analyses indicate that implementation of GST is positively related to market demand of gold (r=.869), inflation (r=.80), smuggling of gold (r=.829). Namely, all variables are positively related to implementation of GST. According to correlation results, Hypothesis 3 alternative hypotheses are supported and null hypothesis are rejected ii. Factors such as demand, inflation and smuggling of gold are not significantly related among organized and unorganized traders: Table 4 Organized traders with: Demand r=.769 Inflation r=.721 Smuggling of Gold r=.876 Unorganized traders with Demand r=.678 Inflation r=.969 Smuggling of Gold r=.935 The above analysis shows that there exists a positive relationship between organized and unorganized gold jewelers’ and their opinion about the factors such as demand, inflation and smuggling of gold. In hypothesis 4 alternative hypothesis is accepted i.e. factors such as demand, inflation and smuggling of gold are significantly related among organized and unorganized traders. 8.4. Garrett’s Ranking Percent position = 100 (Rij – 0.5) Nj Where Rij = Rank given for the ith variable by jth respondents Nj = Number of variable ranked by jth respondents. With the help of Garrett’s Table, the percent position estimated is converted into scores. Then for each factor, the scores of each individual are added and then total value of scores and mean values of score is calculated. The factors having highest mean value is considered to be the most important factor. The findings of ranking are as under: Table 7 Ranking on objectives of GST as per organized traders preference ITEMS RANKS Transparency 1 Increase tax compliance 3 Improve transaction traceability 2 Increase price 4 Increase demand 6 Profitability of traders 5 http://www.iaeme.com/IJM/index.asp 88 editor@iaeme.com
Ashalakshmi. RK Table 8 Ranking on objectives of GST as per unorganized traders preference ITEMS RANKS Transparency 4 Increase tax compliance 5 Improve transaction traceability 1 Increase price 3 Increase demand 2 Profitability of traders 6 9. CONCLUSION In this study, the researcher tried to explain how GST implementation affect the gold jewellary trade in India the organized and unorganized traders have difference in their preference while analyzing the objectives of GST. On the other hand GST implementation and factors like demand, inflation and smuggling of gold are unrelated in organized and unorganized sectors. The unorganized traders don’t believe that GST will pay a way to organized trade. The organized traders are more positive on appropriateness of GST rate and implications of GST. Both traders are agreeing to the fact that it takes long time to familiar with GST. RECOMMENDATIONS Currently, tax is exempted on jewellery making charges. The GST Council meeting had fixed GST on precious metals and diamonds, including jewellery, at 3 per cent. However, tax on making charges of jewellery was kept at 18 per cent. This necessarily needed a rethink. The unorganised sector should give more awareness on the technical side and implications of GST.A higher-than-recommended GST rate notwithstanding, the gold jewellery industry has heaved a sigh of relief after the government announced taxes under the new regime. GST for the gold jewellery has been fixed at 3 per cent, although the industry has demanded a cap at 1.5 per cent. REFERENCES [1] https://timesofindia.indiatimes.com/business/after-e-way-bill-govt-eyes-tools-to-check-gst- evasion/articleshow/63706581.cms [2] http://www.financialexpress.com/economy/interstate-e-way-bill-phased-roll-out-from-april- 15/1128842/ [3] https://timesofindia.indiatimes.com/business/after-e-way-bill-govt-eyes-tools-to-check-gst- evasion/articleshow/63706581.cms [4] https://www.businesstoday.in/current/economy-politics/why-many-registered-taxpayers-are- not-filing-gst-returns/story/271554.html [5] "About Us – GSTN". www.gstn.org. Retrieved 2018-02-06. [6] https://www.telegraphindia.com/business/gst-pivot-faces-nationalise-call-223685 http://www.iaeme.com/IJM/index.asp 89 editor@iaeme.com