Rajasthan lures bullion trade with lower sales tax

The Rs 40,000-crore bullion trade has started shifting to Jaipur with the sales tax incidence in the state of Rajasthan being just about one-tenth of that prevailing in other bullion centres across the country.

Jaipur is likely to corner 75 per cent of the entire trade since Rajasthan has implemented a green channel scheme where the sales tax on bullion trade would be between 3 paise and 10 paise (0.03 per cent and 0.1 per cent), based on the trader's turnover, said Suresh Hundia, president of the Bombay Bullion Association.

"With the tax remaining at one per cent in the rest of the country, three-fourth of the bullion business is gravitating towards Jaipur," said Hundia.

Hundia is among the top 10 bullion exporters with an annual turnover of Rs 2,800 crore.

In the past Jaipur was the top entry port for the bullion trade in India, and it may regain it position, said bullion consultant Bhargava Vaidya.

With the bullion trade leaning more towards Jaipur, other centres like Haryana and Ahmedabad are also likely to amend the sales tax so as not to lose the bullion business.

Traders expect Ahmedabad to bring down the sale tax incidence to about 0.5 per cent and that in Haryana to 0.3 per cent so that these centres will be competitive with Jaipur.

Two years ago, most of the gold imported into India went to buyers in Jaipur and Ahmedabad as the sales tax structure at the two centres was favourable.

The bullion trade in Mumbai was worth around Rs 10,000 crore. Traders said they feared it could go down to Rs 2,000 crore if the business moved to Jaipur.

Till 2002, Rajasthan was levying lower sales tax, and the annual bullion trade in Jaipur was worth around Rs 8,000 crore. The lower sales tax levy now would push up the trade to roughly Rs 6,000 crore, said traders.

The sales tax differential advantage however could vanish by March 2005 so the shift of the bullion trade to Rajasthan may be shortlived. This was because by March 2005, the central and state governments would implement value added tax (VAT) eliminating these anomalies.