Illegal business in gold has widespread just after the GST has kicked in, as pointed out by Ahammed M.P., chairman of Malabar Gold and Diamonds. This view is echoed by economists and taxation experts.
“It is provided that we are the second-largest consumer of gold and gold imports have remained silent in recent months, this indicates that gold transactions are carrying out through unorganized channels,” as said by Madan Sabnavis, a chief economist at CARE Ratings Ltd.
Sachin Menon, chief (indirect tax) at KPMG India, tells that, “Increased seizures done by tax officials, majorly at metropolitan airports clearly indicate that illegal trade of gold has been on growing not only in South India but also in other parts of the country.” The reference made to the south is based on a report in the Deccan Chronicle newspaper, which provided that a surge in unofficial gold imports is taking a toll on revenues of Telangana and Andhra Pradesh.
On a comparative calculation, each Telugu-speaking state is adding Rs500-800 crore in their revenue, as the yellow metal is being sold in the grey market of just avoiding taxes, said the news report citing a senior government official.
To be correct, this phenomenon is not restricted to the south itself. Recently, the Directorate of Revenue Intelligence seized a total of 32kg of gold worth Rs10.32 crore, one of the biggest seizures of smuggled gold in recent history, all among east and north-east India.
The problem, however, observes to have less to do with the tax rate— present GST on gold is, at 3%, much lower than that of import duty i.e. 10%. The issue appears, is more concerned with ensuring compliance.
For example, traders are taking advantage of the present loophole in the rules for buying old gold jewellery. Since there is a GST exemption on the purchase of old gold jewellery from an unregistered dealer, the gold jeweller can easily import the gold through their illicit channels and present that in his books as a purchase of old gold and can easily evade tax. It is primarily conducted in jewellery purchases of not more than Rs 2 lakh were declaring the permanent account number (PAN) is not necessary for the consumer.
Official gold imports have declined on a year-on-year basis. In a case where bank deposit interest rates are steadily low, gold becomes an attractive asset, as told by Sabnavis of CARE Ratings. Surely, some money is being shifted to the equity markets and to mutual funds. But in fact, that gold imports have decreased which suggests that the demand for the yellow metal is being met somewhere else.
