The industry experts have said that the GST Council's decision to impose a 3% GST on gold will not only make jewellery costlier but also lead to a higher incidence of illegal gold trade.

“With GST, the total duty has become very high and the customs duty maybe revisited, “said Ajay Sahai, director general at Federation of Indian Export Organisations. The duty could be one of the highest among major gold consuming countries, which could lead to high incidence of smuggling."

On the retail front almost 30% of the jewellery sector is organised .The main challenge is that 90% of gold jewellery manufacture is in the unorganised MSME sector. Bringing the unorganised gold sector into the GST ambit will be a difficult aspect for the government.

India, China and West Asia are the world's leading gold jewellery markets. On Friday, the GST Council also fixed a GST rate of 3% on silver, gold jewellery and processed diamonds, which is higher than the industry estimate.

With an existing 10% import duty, consumers will have to pay an effective duty of 13% on gold jewellery, up from the earlier 12.5%, which comprised 10% import duty, 1% value-added tax, 1% excise duty and 0.5% cess. India exported gems and jewellery worth Rs 2.89 lakh crore in 2016-2017, up 12.32% from the previous year.

The GST Council has imposed a 0.25% GST on rough diamonds. The chairman of GJEPC (Gems &Jewellery Export Promotion Council) , Praveenshankar Pandya, called it a retrograde step as it will revaluate the viability of conducting the cutting and polishing activity  in India due to thin margins in the segment. He said, it would invariably cause a major setback to the trade and impact India, significance in the global markets.

Another concern flagged by the jewellery sector is that material costs comprise 80-85% of the ornaments and makers will get input credit only on the labour charges.

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