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Manufacturer-retailers take on reputed jewellers on pricing

GST officials reportedly seized 120 kg of unaccounted gold in Thrissur.

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KOCHI: Manufacturer-retailers have emerged as a powerful new class in the gold jewellery trade, gradually encroaching on the market share of established jewellery networks run by reputed brands

Manufacturer-retailers, who have significant flexibility with making charges – a critical component of the final jewellery price – are well-positioned to compete with established jewellers on price.

The new trading class has started evolving more than ten years ago in the state, especially in Thrissur, the ‘Gold Hub’ of Kerala, and of late, it has posed challenges to the decades-old established gold jewellery retailers, according to informed sources in the industry.

The manufacturer-retailers operate under a low cost environment, and hence are able to attract more customers by quoting relatively better prices, due to obvious reasons.

Talking to businessbenchmark.news, a retail jeweler said the business pattern has undergone tectonic changes in the past few years, right from sourcing raw materials to the sales, and so have the new challenges posed by these changes.

Capturing market share

While established jewellers remain cautious about acknowledging a shift in sales, informed sources suggest that a significant portion of the retail business has been captured by manufacturer-retailers, diverting it from traditional retail outlets, maybe a phenomenon unique to Kerala.

It is in this context, yesterday’s (Wednesday) raid of the gold jewellery retailers and manufacturers in Thrissur, carried out by the Kerala GST team, is to be viewed.

The established jewellery retailers complain that the new breed of manufacturer-retailers escape paying taxes as they operate discreetly, and needless to say, their operating cost is less compared with that of the reputed jewellery retail chains, and this invariably helps them keep their prices under check.

Unaccounted gold seized in Thrissur

During the GST team’s raid operation that began yesterday targeting gold jewellery manufacturers, the GST officials reportedly seized 120 kg of unaccounted gold in Thrissur.

Dubbed Torre del Oro (meaning “Tower of Gold”), the operation involved thorough inspections at 78 locations that revealed numerous irregularities related to billing and taxation practices within the industry.

GST evasion has been rampant in the gold retail business as is acknowledged by the Department itself. The Opposition leader, VD Satheeshan had earlier criticised the state government for failing to curb GST evasion in gold and alleged that tax defaulters in the gold business were being allowed to evade penalties in exchange for sponsorships to government events.

Tax evasion-conducive business

As explained by a GST official recently, gold jewellery retailing is a tax evasion-conducive business given the fact that huge volumes of gold are still regularly smuggled in to the country, especially through the airports in Kerala, evading duty.

Though the duty has been reduced considerably in the FY25 budget from 15 per cent to 6 per cent, smuggled gold still commands good demand in the market, mainly because this is unaccounted gold with good potential as raw material.

Since this smuggled gold is funneled through various centres and eventually used as raw material for gold jewellery, evading taxes on the finished jewellery becomes easier.

By bypassing the legitimate raw material-to-finished goods supply chain, the entire process can escape regulatory oversight.

Mostly cash settled

The prevalent use of cash in gold transactions facilitates tax evasion, as it allows businesses to avoid creating a paper trail that could be audited​

And more importantly, the presence of numerous small players, including artisans and local manufacturers, makes it challenging for the tax department to enforce compliance with GST regulations, leading to widespread evasion​

Malabar Gold’s chairman, MP Ahammed, has always been vocal against the prevalence of smuggled gold in the gold jewellery ecosystem due to its negative impact it exerts on the legitimate jewellery business in India.

Ahammed had always been meticulous in calling on the government to reduce import duties to curb smuggling, which he argued would boost domestic retail sales, improve the quality and transparency of gold trade, and increase the country’s tax revenues.

Import duty has drastically been cut since then. But smuggling of gold and evasion of GST continue to hurt the economy for newer reasons.

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