Mumbai loses the gold race

Mumbai's gold trade is fast losing out to Gujarat and Rajasthan. Though official gold prices in the city are much lower than those coming in from the two neighbouring states, actual purchase prices are higher on account of Value Added Tax (VAT). VAT is not included in the official price of Mumbai gold.

In Gujarat and Rajasthan, only sales tax is applicable as these states have not yet accepted VAT.

Perhaps for the first time, there are two prices of gold being quoted in Maharashtra. This is unprecedented as official rates should always be higher than the unofficial rates of gold coming from other states, said bullion consultant, Madhusudan Daga.

Gold in non-VAT states is still subject to sales tax at 0.25 per cent, which is far lower than the 1 per cent levy under VAT in Maharashtra.

While sales tax is included in the official price quoted in the non-VAT states, in Maharashtra, the official price of gold stands lower since the tax is added as a separate component to the quoted price, which makes the actual price higher than the official ones.

For instance, if one were to take the price of gold at $ 421 per troy ounce, the gold would sell at Rs 5,982 in Mumbai, excluding the VAT, which is calculated at roughly Rs 60 per 10 gms. So that means, gold in Maharashtra sells at Rs 6,042 per 10 gms, taking the rupee exchange rate of Rs 43.5 to the dollar.

On the other hand, the official price of gold in Ahmedabad stands lower at Rs 5,990 inclusive of all taxes (0.25 per cent sales tax). Due to this, Maharashtra continues to be a loser in the bullion trade as Gujarat and Rajasthan have not adopted the VAT system and their gold is cheaper.

"States which are out of VAT should also come under the scheme," said Harmesh Arora, vice-president, Bombay Bullion Association.

While the consumer continues to pay more for gold in Maharashtra, the traders are treating this as an opportunity to make money. Many prefer to import the gold from neighbouring states and avoid paying VAT.

"When buying gold, consumers should insist on a bill as it authenticates the transaction, and would bring more VAT compliance to the bullion trade," said Daga.

According to industry sources, roughly 50 per cent of the gold in the city is currently being sold on cash basis without bills in order to bypass the VAT.