Opposing the Karnataka State Budget's proposal to increase the rate of VAT on jewellery from 1 per cent to 2 per cent, the Jewellers' Association of Bengaluru has submitted a memorandum to the State Government seeking to revoke the clause to “enable jewellery retail houses in the State to continue growing their business”.

Said Mr Pathi Mahesh, President, The Jewellers' Association, Bengaluru: “This rate revision is a big blow to the jewellery industry. If it is implemented, it will result in trade diversion to other neighbouring States, as consumers who buy jewellery in Karnataka will have to pay more.”

unethical trade

“The hike in VAT will also encourage unethical trade practices, and evasion/avoidance will increase. Over the last few years, the gems and jewellery sector has contributed substantially to the State exchequer by way value-added taxes and other allied taxes. This contribution is expected to increase because of the stable economy and the general high business potential. A number of jewellers have set up businesses in the State, and the transparency in the trade is also better, as a result of which the compliance levels had gone up. However, the State has not reacted proactively by retaining the existing tax rates,” he added.

Mr S. Venkatesh Babu, secretary of the association said, “As the price of gold and silver has more than doubled in the last couple of years, the revenue to the Government has gone up accordingly. All the gold and silver imported into the State [are levied with] Customs Duty and VAT, so the Government gets its due. Value-addition occurs in the form of conversion of bullion to jewellery. This value addition is about 10-12 per cent of the value of the bullion. The additional VAT collected by the Government on this value-addition is negligible to the Government, but a major deterrent to the consumer, and hence the industry.”

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