Gold shipments to the western Indian state of Gujarat, which used to be a major hub for imports of the metal, are likely to rise sharply after the state's sales tax on gold was cut at the weekend, traders said.
The Gujarat government lowered the sales tax on gold to 0.25 percent from 1 percent on July 30 to lure back importers who had shifted their operations to take advantage of lower taxes in neighbouring Rajasthan state.
"Ahmedabad will now regain its prominence as a major gold importing centre," Girishkumar Chokshi, president of All Gujarat Bullion Dealers Association told Reuters.
Ahmedabad accounted for nearly 35 percent of India's total gold imports until the end of 2000. India, the world's biggest buyer of the metal, imports about two-thirds of its gold needs.
Trade was diverted to Rajasthan, which charged lower duty through inventive schemes, after Gujarat raised the tax to one percent to comply with a uniform federal tax regime.
Sales tax in other major gold importing centres such as New Delhi, Bombay and Madras is at 1 percent.
"Now there will be a level playing field and the traditional trade relations enjoyed by Gujarati traders will put them in an advantageous position," Chokshi said.
Bullion dealers in Gujarat now expect to cater to gold demand from Madhya Pradesh, Maharahstra and northern India. They said gold imports to Ahmedabad could double from 300-400 kg a day currently.
But traders said Gujarat may not be able to sustain the advantage of the lower tax beyond April 1, 2005, when all states would be required to implement a uniform value added tax regime.
With the reduction in sales tax, local levies on imported gold in Gujarat and Rajasthan would be more or less the same. Cargo handling facilities at Ahmedabad's international airport are likely to further cut importers' costs, they said.
Jaipur, Rajasthan's capital city, had attracted gold importers by introducing a "green channel" under which buyers could pay a lump sum tax of 2.5 million rupees and import gold worth 1 billion rupees.
Retail gold demand in India was likely to remain subdued until mid-August, traders said.
"Wholesalers and jewellery makers are buying to replenish stocks ahead of the festival season. Retail demand is not there," said a trader in Ahmedabad.
Traders said the revival of the south-west monsoon over most of India in the past week had erased any worries over poor farm income hitting gold jewellery demand.
"The monsoon is no longer a worry. Retail demand will come from the end of August when marriage and festive seasons begin," said a trader.
Gold demand in India grew 25 percent to 149 tonnes in the first quarter of 2004 from the corresponding period of the previous year, according to figures compiled by the Gold Fields Mineral Services for the World Gold Council.
In 2003, gold demand rose by three percent to 588 tonnes, from 570 tonnes a year earlier.
Comments
Comments are closed.