Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Smuggled Gold Pouring into India as Consumers Dodge Taxes

  by    0   0

An increase in the import duty hasn’t dampened Indians’ appetite for gold. It’s just pushed the market underground.

Gold is such an important part of the Indian economy, people will do whatever they have to in order to get their hands on the yellow metal – including skirt the law. According to a recent report by the Hindu, occurrences of gold smuggling have risen rapidly in the wake of higher import taxes.

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%.”

Government efforts to crack down on smuggling have proven largely ineffective. Officials estimate customs agents and police have intercepted less than 10% of the gold entering the country illegally. Police do a better job of catching smugglers traveling by air from West Asia and south-east Asia, but officials say gold brought in through the international waters of Sri Lanka and the porous borders of Myanmar, Thailand, Nepal, Bangladesh, and Pakistan is seldom tracked.

All-told, officials estimate smugglers bring in 200 tons of gold or more into the country every year, and that number continues to increase.

The tax man is trying to get a take on both sides of the transaction. In addition to the 10% import duty, the government levies a 3% goods and service tax (GST) on jewelry sales. The new tax went into effect over the summer. Many analysts think the revamped tax structure will ultimately increase the demand for gold by making the supply chain more transparent and efficient. But in the short-run, the tax seems to have simply motivated people to find creative ways to avoid paying it.

The 3% GST, as against 1% VAT earlier, is pushing a large portion of jewelry trade to the grey market, an industry watcher said. If end consumers were unwilling to pay 3% GST on jewelry purchases, it forced jewelers, who had earlier invoiced with 1% VAT, to conduct sales without invoicing.”

Association of Gold Refineries and Mints secretary James Jones said tax avoidance on the retail side is increasing the demand for smuggled gold.

These unaccounted funds at jewelry 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 organized sector.”

Some officials see the writing on the wall and are calling for a repeal of the import tax scheme.

“The grey market can be disincentivized only by bringing down the net of levies to realistic levels of 6%,” said Ahmedabad-based bullion dealer, Haresh Acharya.

Even with the taxes, gold demand in India remains robust. After nearly tripling in August, demand remained strong in September. Gold demand rose 31% year-on-year last month. Imports came in at 48 tons. Keep in mind – that’s the official import total and doesn’t factor in the grey market.

Indians have a love affair with gold. It’s not just a luxury. Even poor people buy gold in India. The yellow metal is interwoven into the country’s marriage ceremonies and cultural and religious rites. Indians also value gold as a store of wealth, especially in poor rural regions. Two-thirds of India’s gold demand comes from these poorer rural areas, where the vast majority of people live outside the official tax system. According to the World Gold Council, Indian households hold over 22,500 tons of gold. Every government effort to “mainstream” and capture the gold economy has failed. It shows the power of the yellow metal. It is virtually impossible to micromanage and control. That’s why so many Indians own gold – no matter what the government does.

TaxFreeGold.Banner.1000x285

Get Peter Schiff’s most important Gold headlines once per week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!


Related Posts

Gold Serving as a Lifeline for Indians During Credit Crunch

Gold has become a lifeline for Indians in the midst of a severe credit crunch. When the state-run lender refused to extend Babasaheb Mandlik credit, he used his wife’s gold jewelry as collateral for a loan in order to buy cotton seeds before the summer sowing season window closed.

READ MORE →

Uncle Sam Is Spending Like We’re In Recession; What Happens When We Really Are?

Last week we got the updated federal budget deficit numbers. At $867 billion, the 2019 fiscal year budget shortfall has already eclipsed last year’s deficit of $779 billion. The out of control spending and spiraling deficits are concerning enough on their own terms, but they become absolutely horrifying when you consider that these budget shortfalls […]

READ MORE →

Yield Curve Inverts Flashing Recession Warning; Stocks Plunge

The yield on the 10-year Treasury fell below the yield on the 2-year for the first time in 12 years, stoking recession fears and tanking stock markets. Yield curve inversions have preceded all nine recessions since 1955.  This was the first time the 10-year Treasury yield has dropped below the 2-year yield since June 2007 […]

READ MORE →

China Adds 10 More Tons of Gold to Its Hoard

the country of china shown on a globeChina bought gold for the eighth straight month in July, adding another 10 tons to its rapidly growing hoard. The recent purchases boosted the People’s Bank of China’s gold reserves to 62.26 million ounces – about 1, 945 tons.  China has added about 94 tons of gold to its stash over the past eight months.

READ MORE →

The Fed Has the US Economy on Life Support

The Federal Reserve has the US economy on monetary life support and Daily Reckoning managing editor Brian Maher says it will never again breathe on its own. As hedge fund manager Kyle Bass put it, the economy is trapped within the inescapable tractor beam of zero percent interest rates.

READ MORE →

Comments are closed.

Call Now