Gold tax shocks jewelers as sales plummet

Gold tax shocks jewelers as sales plummet

Jewellers have been hit with a drastic drop in sales due to the government’s decision to impose a heavy tax on gold and are being forced to lay off workers.

Evening shadows fall on a not-so-busy Sea Street in Pettah, usually a hive of activity. Pix by Priyantha Wickramaarachchi

There were fewer customers seen browsing through the jewellery shops in Sea Street, Pettah and goldsmiths appeared to be idle when we visited the area on Friday.

Sales have dropped by more than 70 per cent, those in the trade said.

The government imposed the tax last month to prevent imported gold being smuggled in and then out of the country without any added value such as in the production of jewellery, but traders say the tax is too high.

The tax has led to an increase in prices of gold jewellery, with a sovereign now costing more than Rs. 61,000, up from Rs. 55,000.

All-Ceylon Gold Traders Association Treasurer R. Balasubramaniyam said the government should have discussed the proposed tax with the trade before imposing it as it could lead to a further rise in gold smuggling.

He said the tax should have been 3-5 per cent, not 15 per cent, as already the government imposes a Nation Building Tax (NBT).

Mr. Balasubra-maniyam also said traders were unhappy at the manner in which licences are issued for gold imports with, apart from the banks, only a few licences in operation.

“There is no proper monitoring system of selling the gold and therefore the government was losing on it,” he said.

“If the trade was regularised there would be a better monitoring system in which the government would be aware of who purchased the gold.”

Mr. Balasubramaniyam said currently traders – mostly from India – arrive in Sri Lanka to sell Indian goods and in return they purchase gold items, which is legally allowed. “Therefore the jeweler trade was benefiting and revenue was coming into Sri Lanka but since the government does not have a proper record it assumed the gold was being smuggled out, which is not a correct assumption,” he said.

As a result of the drop in sales, he said, jewellery shops have been forced to tell workers not to return to work until trading returned to normal.

Some 25,000 workers are employed in more than 1,000 shops registered to carry out gold and jewellery trading in the Colombo city limits. In addition, there are more than 12,000 goldsmiths in the city limits.

Association of Gem and Jewellery Deputy Chairman Selvakumar Kandasamy said the association had begun negotiations with the government over relief to traders.

“We are in the process of preparing a new proposal regarding taxation,” he added.

He said the high tax only encouraged smugglers. People would smuggle in gold from countries such as Dubai and sell it illegally, without paying any taxes, resulting in losses for the government.

Goldsmiths described how they have been left without work in the past few weeks.

“Before the tax, over a month I used to work on jewellery worth a volume of 25 sovereigns. Now, I do not get one sovereign’s worth a week,” said Vinayagamoorthy Chandrakumar, a goldsmith from Batticaloa, who has been in the trade for the past 32 years. “We have a little silverwork now. If this trend continues, we’ll be forced to return to our village and take a labouring job to maintain the family,” he said.

A spokesman for the Gem and Jewellery Authority said exporters of gold jewellery have also been affected as they cannot export items at a competitive price. “The government should have consulted the stakeholders before taking this decision,” he said.

Customs spokesman S. Jayaratna said Customs officers and the navy have detected 51kg of gold, worth Rs. 319 million, being smuggled in and out of the country over the past 16 months. The detections were made at the Bandaranaike International Airport or in the northern seas.

The bulk of it was being smuggled to Tamil Nadu, where there is a high demand for gold.

Mr Jayaratna said the airport transit lounge was a known location for smugglers, with gold being exchanged between incoming and outgoing passengers.

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