As many as 4,000 gold and silver jewellers in Kerala observed a hartal on Tuesday in protest against the government's decision to hike sales tax on gold.
In his maiden budget last Friday, Finance Minister Thomas Isaac announced 4 per cent hike on gold from the existing one per cent. Describing the move as anti-traders, the All Kerala Gold and Silver Merchants Association called for a one-day bandh.
AKGSMA President P T Cherian Palathra said the tax hike would badly hit the gold trade in the state, which was already in doldrums following a steep price increase.
Recalling the UDF government's decision to reduce sales tax on gold after VAT was introduced in the state in April last year, he said the hike would result in illegal cross-border trade as the tax in Tamil Nadu was only one per cent.
He feared a major chunk of the business moving to Coimbatore, Chennai and Nagercoil in Tamil Nadu.
"The loss in the volume of business will only dent sales tax revenue," AKGSMA said and demanded an immediate rollback of the hike.
Meanwhile, the finance minister said the hike was necessitated by a large-scale evasion of tax by jewellers in the state. Citing a study by the Centre for Taxation Studies, he said the state had an annual gold business of about Rs 10,000 crore (Rs 100 billion) and a tax revenue potential of Rs 100 crore (Rs 1 billion)
at one per cent.
But the actual tax collection in the 2005-06 fiscal was only Rs 21 crore (Rs 210 million), which, according to him, was a clear indication of widespread tax evasion. The government expected to mop up more revenue by reducing the tax but in vain. Therefore, it was forced to restore 4 per cent tax, he said.
The finance minister said in order to curb tax evasion, officials of sales tax would be deployed in big jewellery showrooms. To encourage customers to secure bills for purchases made, a lottery scheme similar to that in Venezuela would be introduced in the state soon.
The government also raised sales tax to 20 per cent from 12.5 per cent on products like refrigerators, ACs, paints, floor tiles, marbles, granite, washing machines, microwave, dish washers, vacuum cleaners, PVC pipes, health drinks, soft drinks, mineral water and sanitaryware.
Meanwhile, marble and granite dealers too have decided to observe a one-day hartal on June 28 in protest against the tax hike.
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