KOCHI: Kerala has come under intense scrutiny for its tax-collection initiatives, especially in the gold jewellery retail sector, amid the challenging fiscal environment in which it finds itself. The state has historically contributed to the national gold demand, typically accounting for a 25-28% share of the annual consumption of 600-800 tonnes. A 2016 study by the World Gold Council (WGC) emphasised that the average weight of jewellery worn by an upper-middle-class Kerala bride is 320g, compared with 180g worn by a Gujarati bride.
Notwithstanding the thriving industry, the state faces challenges in efficiently collecting taxes on gold jewellery, prompting criticism and concerns about potential revenue loss. Experts emphasise that Kerala’s annual tax revenue from gold jewellery trade is less than Rs 600-1,000 crore, a modest figure considering the state’s annual consumption of approximately 150-200 tonnes.
RTI data reveals that there are 10,649 registered establishments, of all sizes, engaged in the gold jewellery trade in the state. In FY2022, Kerala collected SGST revenue of Rs 343.81 crore when, based on returns filed by traders, total turnover of the sector was reportedly Rs 101,668.96 crore.
V J Gopakumar, former deputy commissioner of commercial taxes, highlighted that tax collected and turnover assessed each year do not mirror reality. He pointed to the evident disparity between escalating gold prices over the years and the tax collected, stressing that they do not align.
Drawing attention to the fact that in 2005-06, the tax collected was Rs 47 crore, he indicated that the compounding system was subsequently introduced as a measure to augment tax collection. “In 2014, EY conducted a study for a renowned jeweller, estimating the total turnover of the jewellery trade in the state at Rs 66,000 crore, whereas turnover assessed for the fiscal was only Rs 27,000 crore,” Gopakumar told TNIE. He disclosed an instance from 2014 when a raid on a major jewellery chain’s Adoor outlet revealed a hard disk indicating sales of Rs 4,200 crore. Consequently, a tax claim was filed and the case is currently pending in the High Court. Gopakumar estimates that the cumulative annual turnover of gold retailers in the state surpasses Rs 2 lakh crore.
In a recent interview with a Malayalam daily, noted economist K P Kannan criticised the state government for lacking willpower in ensuring effective tax collection, especially in the case of jewellery retailers.
A senior official with the state GST department acknowledged the complexity of taxing the gold trade, citing numerous layers of secrecy within the sector. “As a commodity, gold possesses many qualities that make it challenging to track and tax. Obtaining accurate information on stock levels at the retail level is also formidable,” the official stressed.
Customers often believe that avoiding bills can help them reduce the selling price, he said. Additionally, many individuals park their black money in gold, and customers prefer not to draw attention to their consumption, contributing to the evasion of direct taxes. He emphasised that the only viable methods to detect tax evasion are chance discoveries or information-based detection.
S Abdul Nassar, treasurer of the All Kerala Gold & Silver Merchants Association, argues that tax evasion is nearly impossible in today’s digitised world. He underscores that the government already receives the highest achievable revenue from sales, considering the deduction of input tax credit set off for taxes paid to manufacturers in other states.
“There is no tax evasion or leakage in the sector. In the fiscal year (2016-17) before the introduction of GST, the tax collected was Rs 653 crore. Traders purchase finished jewellery mainly from Mumbai, Surat, and Jaipur and pay taxes there. It is offset when paying tax at the final sales point. Returns are filed online, and they are accepted only after taxes are paid under respective heads,” he said.