GST regime: Tax hike could increase illegal gold sales

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GST regime: Tax hike could increase illegal gold sales

Post by Admin on Wed Jul 05, 2017 7:51 pm

A hike in taxes on gold sales in India could stoke under-the-counter buying and drive up an appetite for rare metal smuggled to the country, where huge numbers of people store big chunks of the wealth in bullion and jewelry.

Included in a unique nationwide sales tax regime that kicked in on July 1, the products and Services Tax (GST) on gold has jumped to 3 per cent from 1.2 per cent previously, with traders and buyers saying the move will probably force more transactions into the market that is black.

"Three percent is too much. I preferred to get without receipts. The jeweler did not have any issue," said a middle-aged buyer, who declined to be identified after making purchases on Monday in the country's biggest bullion market, Zaveri Bazaar in Mumbai.

Gold rate in mumbai

Smaller shops might be more inclined to offer without receipts, potentially hitting sales at big jewelers that stick to the principles, said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler when you look at the eastern Indian city Kolkata.

"Just to save 1 percent, some customers were earlier buying gold without receipts. Aided by the GST that is 3-percent much more will soon be tempted to make unofficial purchases from small jewelers," Ajmera said.

The tax hike may also encourage more smuggling to the world's second-biggest gold consumer, which buys the majority of its bullion abroad.

Gold smuggling has been rife since India raised import duties regarding the metal to 10 per cent in a series of hikes to August 2013, trying to curb demand to narrow a gaping current account deficit (CAD).

The planet Gold Council estimates networks that are smuggling up to 120 tons of gold into India in 2016.

"The GST rate has increased the incentive to bring in gold that is smuggled. Us government should reduce import duty while making smuggling unviable," said Aditya Pethe, a director at Waman Hari Pethe Jewellers in Mumbai.

The country's legal imports typically stand at around 800 tons a year, because of the metal used in anything from investment to religious donations and wedding gifts.

"a lesser import duty would increase legal imports and sales that are ultimately legal. Tax revenue would go up in the place of taking place," said Daman Prakash Rathod, director at wholesaler MNC Bullion into the city that is southern of.

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