Ever since the import duty on gold was raised to 10%, the country has reportedly witnessed a rapid rise in the quantum of gold brought into the country illegally. Currently, government levies total 13%, including IGST of 3%.
In light of a significant amount of unaccounted money involved in gold trade and related businesses, the NITI Aayog has formed several sub-committees involving members of industry associations to formulate suggestions to the government to help incentivise the recirculation of idle, domestic gold holdings and to promote the craftsmanship of the jewellery industry to boost exports.
The bullion and jewellery industries are now distinguished as two different segments.
Market sources indicate that ‘hardly 10% of the gold that enters the country illegally are being intercepted’ through tip-offs. These are typically transported by air from West Asia and south-east Asia.
However, gold brought in through the international waters of Sri Lanka and the porous borders of Myanmar, Thailand, Nepal, Bangladesh and Pakistan are seldom tracked.
It is estimated that an average of 200 tonnes of gold per annum is supplied by these grey channels to the total domestic business volume of 1,000 tonne per annum, which includes 200 tonnes of gold from recylcing of scrap jewellery.
‘Demand for lower duty’
“The grey market can be disincentivised only by bringing down the net of levies to realistic levels of 6% [5% basic customs duty plus 1% IGST],” said Ahmedabad-based bullion dealer, Haresh Acharya.
“This will also help curb the ‘official sector smuggling’, export of fake or of substandard jewellery against the equal quantity of bullion imported duty free,”
In addition to the 13% levied on imports, there is a 3% GST on jewellery sales, which is subsumed against the 3% IGST paid at the time of import.
At jewellery shops, if the end consumer preferred to avoid invoicing, it led to the 3% GST not being paid on the sale.
Evasions at various points are playing havoc with the organised sector bullion manufacturing, gold refineries and bonafide bullion dealers importing through banks and nominated agencies, Mr. Acharya said. “Their interests can be protected only by disincentivising smuggling, through the reduction of import levies on bullion,” he added.
The 3% GST, as against 1% VAT earlier, is pushing a large portion of jewellery trade to the grey market, an industry watcher said. If end consumers were unwilling to pay 3% GST on jewellery purchases, it forced jewellers, who had earlier invoiced with 1% VAT, to conduct sales without invoicing. “These unaccounted funds at jewellery shops are then used for their raw material purchase of bullion, leading to the growth of a large, parallel economy for unaccounted bullion, much to the dismay of the organised sector,” said James Jose, secretary, Association of Gold Refineries and Mints.
A chunk of sale and purchase of old gold and scrap jewellery too has gone into unaccounted mode with the 3% GST, and the reverse charge penalty on purchases from the unregistered sector consumers, fuelling the growth of the parallel economy, a source said.
With the BIS Act 2016 taking effect from October 12, and mandatory hallmarking of jewellery on the radar, it is only pertinent that the jewellery sold in the country comes under the tax net for revenue purposes and to protect consumer interests in hallmarking, said Harshad Ajmera, president, Hallmarking Centres Association.