Golden day for the state exchequer

Yeddyurappa's VAT hike on gold jewellery from 1 per cent to 2 per cent in the budget, might be a dampener for some on Akshaya Trithiya, but for the exchequer, it's a goldmine

Akshaya Trithiya, this time around, will bring a healthy bonus to the state government in terms of commercial tax because of the doubled Value Added Tax (VAT) levied.

Chief Minister B S Yeddyurappa, who also holds the finance portfolio, increased VAT on gold jewellery from 1 per cent to 2 per cent in his budget presented in February this year.


This time, even if sales volume remains the same, revenue will be double as VAT levied is 2 per cent instead of 1 per cent

While the market is apprehensive about a dip in sales, the tax hike apparently failed to dampen the spirits of consumers, who are on a gold buying spree on the auspicious day. As a result, the commercial tax department is also raking in moolah.

Gold worth approximately Rs 150 crore was sold in the city last year on Akshaya Trithiya fetching the state exchequer Rs 1.5 crore in revenue in a single day. This time, even if sales volume remains the same, revenue will be double as VAT levied is 2 per cent instead of 1 per cent.

"It was a good decision to hike VAT on gold jewellery, because those who opt to buy can afford it, and the government needs revenue. We are expecting a revenue hike in terms of VAT and Akshaya Trithiya is a lucky day for us also," said an official in the commercial tax department.

Peeved
Jewellers and gold outlets initially seemed peeved by government's move. The strike by the jewellers association protesting the government for hiking the VAT fizzled on March 25, but they are still unhappy with the move.

Mahesh Pathi, president of the Jewellers Association said, "Akshaya Trithiya is a day when most Indians buy gold and are not affected with the VAT. Some small jewellers might sell without bills to save taxes and though it might affect bigger shops, it will be negligible."

Amidst the festive euphoria, some skeptics feel that the hike might prompt a trade diversion to neighbouring states where VAT is less.

For instance, VAT on jewellery in Tamil Nadu is 1 per cent and is merely a 45-minute drive from the city to Hosur in Tamil Nadu and customers cannot be forced to buy only from Karnataka.

"It is similar to what some people do every year during Diwali. Since firecrackers are cheaper in Hosur, Bangaloreans drive down and purchase what they require from there.
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The disparity in tax brings in a trade diversion and we have brought this to the CM's notice, but he is yet to react," said B T Manohar, chairman state taxes committee, Federation of Karnataka Chambers of Commerce and Industry.

All that glitters
The state gained around Rs 150 crore in revenue in financial year 2010-11, as the turnover was pegged at
Rs 14,700, which includes both bullion and jewellery. This time, the rate on bullion remains at 1 per cent, while it has been doubled for jewellery. Officials are now expecting estimated revenue of at least Rs 250 crore for the financial year 2011-12.

Gold Rate
Last year: Rs 16,250 per 10 gm
This year: Rs 20,540 per 10 gm