Tax hike puts wet blanket over gold buyers` joy

Kerala government's move forces bulk purchasers to head for other states.

The Kerala government’s Budget decision to hike tax on gold ornaments to 4 per cent from the earlier 1 per cent has thrown a wet blanket over the season of joy for gold jewellery shop owners.

Usually during this season – the Onam festival and wedding time – they hear their cash registers ring loudly, but they are a worried lot, today.

Earlier, Kerala’s jewellers used to earn a lot from the purchases of bulk buyers. But, the state’s gold buyers are currently shunning local outlets and are making a beeline for neighbouring states’ lower-priced offerings.

And, indeed, they are saving a lot on the costs in the process.

“Of late, there has been a rise in demand and investment prospects for gold. However, the tax hike has come as a jolt. Bulk buyers, who shop during marriages and Onam, are increasingly heading for Chennai and Bangalore,” said Ramesh Pai of Kochi-based Geeri Pai Jewellers.

While there are big- to medium-size jewellery shops dotting the length and breadth of the state, Kochi, given its large number of gold shops, has greater potential to emerge as a trade hub for the precious metal, in south India.

K R Bijimon, general manager, Muthoot Finance, said, “Keralites are fond of gold, as it is a great investment option. The government’s move to increase the tax will affect the state’s gold industry.”

Echoing a similar view, Pai said, “The Budget proposal has brought gold on par with luxury items, while the fact remains that it can never be seen as a luxury item. It is a big investment option for the buyer, on the contrary.”

With travelling expenses tumbling, Kerala’s bulk purchasers seem to be quite willing to go to other southern states to buy gold and, thereby, save a substantial amount.

Pai blamed it on the inability of the jewellers’ association of Kerala to “convince the government of our plight”.

In the circumstances, the state jewellers are considering setting up outlets in cities such as Chennai and Bangalore, which, they feel, will help cushion the impact of the tax hike.