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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
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ISSN Print: 0976-6502 and ISSN Online: 0976-6510
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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
Goods and Service Tax Implementation in Jewellery Sector: A comparative study on
organised and unorganised traders in India
http://www.iaeme.com/IJM/index.asp 84 editor@iaeme.com
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
Ashalakshmi. RK
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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
Goods and Service Tax Implementation in Jewellery Sector: A comparative study on
organised and unorganised traders in India
http://www.iaeme.com/IJM/index.asp 86 editor@iaeme.com
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.
Ashalakshmi. RK
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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).