VAT fillip to Karnataka jewellers

Buying and selling gold jewellery was never so exciting. Under value added tax (VAT) gold jewellery traders in Karnataka stand to benefit the most.

Till two months before the introduction of VAT, taxation on the jewellery trade in the state was 4 per cent. Then it was brought down to 2 per cent. With the introduction of VAT, the rate has been further lowered to 1 per cent on an experimental basis.

As a result, sales of retailers and wholesalers have doubled in the last three months. With lower taxes, the city has become one of the major consuming centres in the south.

On the retail trade front, the city is witnessing a daily average sale of 350 kgs through 5,000 shops in and around Bangalore city, said Mahesh Pathi, secretary, Bangalore Jewellers Association.

Before VAT, jewellery traders were facing a lot of technical problems in terms of taxes at different levels but after its introduction, major irritants have been resolved. However, it may take three to six months for things to finally stabilise, said George Chemmanur, chairman of Chemmanur Jewellers.

"Currently, there are about 15 wholesalers (small, medium and big) and more are mushrooming in the region to take advantage of lower taxes. Each wholesale shop sells a minimum of 50-100 kgs a day and holds 500-750 kgs of stock in Bangalore," he added.

With lower taxation and consumption going up, large quantities of gold in the form of ornaments and bullion of around one tonne is said to be moving into Karnataka everyday from Kolkata, Mumbai, Kerala and Tamil Nadu.

The high consumption rate is also leading gold retailers from major Indian cities, especially from Kerala, and Tamil Nadu, to flock to the city in search of business opportunities.

Thanks to IT, the city has seen an influx of wealthy and fashionable people who spend on jewellery regularly. This has led many Tamil Nadu and Kerala-based traditional jewellers to set their eyes on Bangalore.

Another reason given by jewellers is the increasing Malayali population here. According to M K Ahmed, chairman of Malabar Gold, the latest entrant into Bangalore market: "People still look at gold jewellery as an investment. Prices have gone up by 16 per cent during the last one year".