Gold smuggling likely to rise in India as festive buyers try to avoid new tax

A Indian legislation makes it mandatory for jewelers to keep records of customers’ personal identification numbers or tax code number for transactions above 50,000 rupees. (Reuters)
Updated 27 September 2017
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Gold smuggling likely to rise in India as festive buyers try to avoid new tax

MUMBAI: Gold smuggling in India, the world’s second-biggest consumer of the metal, is likely to rise during the country’s peak holiday season as buyers try to avoid paying a new sales tax and to dodge new transparency rules.
In August, India moved to include gold sales under the Prevention of Money Laundering Act (PMLA). The law makes it mandatory for jewelers to keep records of customers’ personal identification numbers or tax code number for transactions above 50,000 rupees (SR2,870).
Indian gold demand typically rises in the last three months of the year as consumer buy more for the wedding season as well as for festivals such as Diwali and Dussehra.
“The government implemented the PMLA rule but it didn’t take efforts to popularise. Customers are not aware of the rule and are hesitating in giving necessary details,” said Surendra Mehta, secretary of the India Bullion and Jewelers Association. “Unaccounted sale will rise in the festive season as some customers are trying to buy without bills.”
The tax avoidance recalls the unintended consequences of India’s decision to raise import taxes on gold to 10 percent by August 2013.
The duty failed to curb demand but revived smuggling networks which, the World Gold Council estimates, imported 120 tons of gold in 2016, over one-fifth of total annual arrivals.
“The new rule is turning out to be counterproductive. Instead of giving required details, customers are buying without proper receipts to save tax,” said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city Kolkata.
The sales tax on gold rose to 3 percent from 1.2 percent as part of a new nationwide sales tax regime that started on July 1.
“Jewelers are buying smuggled gold at discount in cash, then making jewelery and selling it to consumers without receipts,” said Daman Prakash Rathod, director at wholesaler MNC Bullion in the southern city of Chennai.
In India, less than 4 percent of the people pay income tax. Many tax evaders choose to park their illicit wealth in gold as it is nearly as liquid as currency in the country.
The new limit of 50,000 rupees is too low and makes it mandatory to seek identification details of almost each customer, said Kumar Jain, vice president, Mumbai Jewellers Association.
“The rule has hurt sentiments. Usually demand improves ahead of Dussehra but this year demand is very weak,” Jain said.
Indians will celebrate Dussehra on September 30, a holiday when buying gold is considered auspicious.
Rural demand for gold, the driver of two-thirds of India’s demand, was weak because of erratic monsoon rains and rising gold prices, said Mangesh Devi, a jeweler in the western state of Maharashtra, who caters mainly farmers.
Local gold prices have risen nearly 9 percent so far in 2017.
India’s food grain production from summer-sown crops is likely to fall 2.8 percent in 2017/18 from a year ago.


Saudi Arabia’s central bank governor expects SR71bn Q2 surplus

Updated 17 September 2018
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Saudi Arabia’s central bank governor expects SR71bn Q2 surplus

  • Dr. Ahmed Al-Kholifey said the data had improved since earlier in the year after an annual decline in money supply at the end of July 2018

JEDDAH: Saudi Arabia’s central bank governor said on Monday that the Kingdom’s current account is expected to record a surplus in the second quarter of this year worth SR71 billion ($19billion).
Dr. Ahmed Al-Kholifey, who heads the Saudi Arabian Monetary Authority (SAMA), said the data had improved since earlier in the year after an annual decline in money supply at the end of July 2018 of less than 1percent, the Saudi press Agency reported. This was due to a decrease in the volume of time deposits and savings by 11%.
Speaking at the SAMA headquarters in Riyadh to highlight the bank’s 54th annual report, Al-Kholifey said the monetary base grew by 2.2 percent in July 2018 compared to the same month last year.
The bank loans to the private sector recorded a rise in July 2018 by less than 1% compared to last year's decline by 1.5 percent.
Meanwhile, consumer loans recorded an annual growth rate of 1 percent in the second quarter of 2018. Loans of small and medium enterprises increased to 3.9 percent of total loans during the second quarter, compared to 2 percent last year.