Pettah jewellers urge VAT overhaul, warn industry is on the brink of collapse

• According to traders, the current tax regime imposes an 18 per cent Value Added Tax (VAT) on both the value of gold and labour charges, in addition to a 2.5 per cent Social Security Contribution Levy (SSCL)
• The price of a gold sovereign has now exceeded Rs. 400,000, with taxes alone accounting for around Rs. 82,000

Jewellery traders in Pettah, Colombo, urged the Government to revise the tax structure imposed on gold, claiming that the local industry has shrunk by nearly 75 per cent as a result of high taxes that have driven prices beyond the reach of ordinary consumers. 

According to traders, the current tax regime imposes an 18 per cent Value Added Tax (VAT) on both the value of gold and labour charges, in addition to a 2.5 per cent Social Security Contribution Levy (SSCL). They argue that these taxes have significantly inflated the retail price of gold jewellery, causing a sharp decline in sales. 

They said the price of a gold sovereign has now exceeded Rs. 400,000, with taxes alone accounting for around Rs. 82,000 of the final price paid by consumers. 

“The burden ultimately falls on customers. As prices continue to rise, people are postponing purchases or turning away from the market altogether,” one rader said. 

Industry representatives warned that the continued decline in demand is threatening the survival of many jewellery businesses while also reducing the Government’s potential tax income. 

They maintain that a revision of the VAT structure would benefit both consumers and the Treasury. In a proposal submitted to the Ministry of Finance, jewellers have requested that VAT on the value of gold be removed and applied only to labour charges, while retaining the applicable social security levy. 

According to traders, the gold content of a sovereign currently accounts for around Rs. 358,700 of its value, while the balance consists of labour and related costs. They argue that taxing the gold component unnecessarily inflates prices and discourages purchases. 

They believe that exempting the value of gold from VAT would lower retail prices, stimulate demand and revive market activity. Increased sales volumes, they say, would ultimately generate higher overall tax revenue for the Government despite the lower tax burden on individual transactions.