India’s demand for gold may remain more or less at last year’s level even if the GST rate on the metal is fixed lower than the current rate of 12 per cent, the World Gold Council (WGC) said on Tuesday.

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It said gold demand in the country will remain between 650 tonnes and 750 tonnes in 2017 as against 674 tonnes last year. “Despite the first quarter showing 15 per cent growth and the second quarter promising to be good because of good Akshaya Trithiya sales, we feel that industry will take 12 to 18 months to adjust to the new GST rates,” said Somasundaram PR, MD at WGC India.

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“Consequently, the demand may be more or less at last year’s level.” The time taken for such adjustment may not be much in southern India, which accounts for 40 per cent of the gold demand in the country, as organised trade is the mainstay in the region unlike in other parts of the country.

The share of organised players in gold trade in India has gone up to 30 per cent from 5 per cent in the last 10 years. The current tax on gold is around 12 per cent, which includes customs duty, excise duty and VAT. The GST Council is of the opinion that the GST rate should be below that as it will bring about a behavioural change among the consumers. Though Kerala has recommended 5 per cent GST on gold, other states may have a different view.

“We don’t know what rate will be charged if we exchange old gold for new one,” said Somasundaram. “Will it be 18 per cent service charge or the GST. A low GST rate will bring down the prices, but if it is pegged high, then the industry may take more time to adjust to it.”

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