Banks that import bullion, gold refineries and jewelers may need to adapt their business models to the new tax regime.

An official notification last night imposed a base tariff of 9.35 percent on importers of gold, replacing the earlier countervailing duty. Imports will be 0.65% cheaper, but gold refiners fear competition from those operating in areas without excise duties.

Gold imports have stalled and the market is offering a premium of $ 4 per ounce.

“The restructured import duties and IGST rates have put gold refineries and ingot importing banks at a disadvantage compared to refineries in excise-free zones like Uttarakhand and Himachal Pradesh,” said James Jose, Secretary of the Association of Gold and Mints Refineries.

For importers of gold, the total tax exit will be 12.35 percent while importers of refined gold will pay 13 percent.

Jose said that this margin was sufficient to cover the operational expenses of the refiners.

However, gold refineries located in excise-free zones are entitled to a 3 percent IGST refund.

“This disparity will affect the industry and the livelihoods of hundreds of thousands of people,” said Jose.

However, a gold refiner in an excise-free zone said, “Units in the excise-free zones will receive a refund from the GST Center, but the rate will be considered 3% of the tax. added value and refund the amount will be insignificant. “

Banks that import bullion also expect pressure on margins after paying 10 percent import duty and 3 percent IGST. They can get the IGST back from buyers, but that will freeze funds for a few weeks. They are likely to focus on consignment business and gold lending.

However, banks will require a separate GST registration in order for the bullion business to receive the full input tax credit.

“The new tax structure will increase working capital costs. It will take a while for the market to adjust, but the new system will make the industry more efficient,” said Shekhar Bhandari, senior executive vice president and chief executive officer. corporate, global transactions, at Kotak. Bank.

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