The rules may be negative in short-term: Geojit BNP Paribas

Jewellery stocks came under selling pressure after the Government made it mandatory for jewellers to collect KYC (know your customer) from customers who purchase jewellery worth Rs 50,000.

A large portion of gold jewellery is still being bought over using cash, thus making it easier for unscrupulous elements to convert their black money into an asset, which till recently delivered a decent return.

The Government, which has been trying to curb gold demand, has made an amendment to the Prevention of Money Laundering Act (PML) to enforce Know Your Customer norms for retail purchases of gold and precious stones.

Currently, retail jewellers collect KYC from customers buying jewellery over Rs 5 lakh to facilitate the deduction of one per cent TDS (tax deducted at source).

Though the amended PML norms have not specified a separate threshold limit for the jewellery sector, it is assumed that the limit of Rs 50,000 applicable to the banking sector will also be applicable to this sector.

Most jewellery company stocks including Titan, Gitanjali Gems, Tribhovandas Bhimji Zaveri, Thangamayil Jewellery, Rajesh Exports and Shree Ganesh Jewellery House have tumbled in the last two trading sessions reacting to the development.

Cheque for transaction

C.J. George, Managing Director, Geojit BNP Paribas Financial Services, said though the Government has plugged a loop hole, it has to make cheque transactions must for all jewellery purchase above a certain limit. “The move may be negative for jewellery stocks in short-term, but it will help clean up the industry and favour the best in business. It also makes sense to consider a separate regulator for the bullion trade,” he said.

To an extent, he said, implementation of KYC for jewellery purchase will also arrest the rampant sales tax evasion prevalent in some States.

Jewellers will also incur a cost on maintaining the records of customers for five years. Additionally, they have to retrieve it as and when it is called for.

According to the new norm, anybody found guilty of money laundering shall be liable for imprisonment which shall not be less than three years, but may extend to seven years, and will also attract a fine.

(This article was published on March 14, 2013)
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