The gold has shot up in value terms, but the government has failed to raise an appropriate share of tax by way of sale of the commodity. The amount collected is not even half, owing to rampant tax evasion in different modes of transaction.

According to World Gold Council data, the country imported 969 tonnes of gold in 2011. The total supply in the country, including domestic supply from recycled gold and other sources, was put at 1,039 tonnes. The net imports in 2012 were 860 tonnes and the total supply amounted to 987 tonnes.

B.Girirajan, president of All Kerala Gold & Silver Merchants’ Association claims that Kerala’s consumption is about 7-8 per cent of the countrywide usage. Though many commodity market observers contest these figures, even going by the traders’ account, about 60 tonnes of gold undergoes sale in Kerala market. With the prices moving around Rs.2800 per gm for 22 carat gold, the sale of the yellow metal in the State, worth Rs.1,6800 crore, should have generated Rs.840 crore by way of VAT at 5 per cent.

The tax revenue from gold sale was around Rs.300 crore in 2011-12, higher than the collection in the previous year by about Rs.80 crore, sources in the industry said. Much of the tax collection comes from jewellers who have opted for the compounding of taxes, a method in which the jeweller pays tax on the basis of turnover, Mr.Girirajan says. The higher costs have resulted in lower volume of sales, according to him.

Kerala imposes 5 per cent VAT whereas in majority of States, it is 1 per cent. The jewellers argue that lesser rate of tax would generate more revenue because of better tax compliance. The State budget has ignored their demand for a cut in tax.

The Ernakulam unit of Kerala Commercial Taxes department, having jurisdiction over commercial outlets in Kanayannur taluk limits, raised a revenue of Rs.92.44 crore on account of gold sale in 2011-12, compared to Rs.69.59 crore in 2010-11. The tax on gold sale during 2012-13, up to February, has reached Rs.87 crore. The revenue comes from over 190 outlets, including banks selling gold coins, according to the department officials.

P.S.Soman, Deputy Commissioner (Intelligence), Commercial Taxes Department, negates the jewellers’ argument that the tax collection will go up if VAT is reduced. “The tax rate in 2005-06 was only 1 per cent, but there was no significant change in the tax collections. The jewellers fear income tax, not VAT; they declare the turnover at a particular level because a higher turnover will invite higher income tax for them”.

Gold reaches Kerala through many illegal routes. Baggage brought by passengers on domestic flights is not subjected to rigorous checking. Smuggled gold bars often reach jewellers. “Gold is being brought in flights which arrive at odd hours. The shadow police seizure which happens occasionally is very small. Even in small bags, 10-15 kg of gold can be accommodated,” Mr.Soman says.

Gold sale sans bill is very high in Kerala, especially for high value transactions. A customer buying ornaments worth Rs.15 lakh will have to shell out about Rs.75,000 as tax. The jeweller will lose the customer if payment through bill is insisted upon.

The State has about 5,000 VAT-registered jewellery merchants, but there is an equal number of unregistered jewellers, points out Mr.Girirajan. The latter display only limited jewellery, but sells much more. The jewellers point out that non-banking finance companies sell large quantities of gold of defaulters, but the government has ignored it.

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