Demonetization was just a salivating trailer. The pounding of black money hoarders in India is about to begin with the rollout of Goods and Service Tax (GST) regime in a couple of months.
Post the note-ban that ruthlessly flattened the unimaginable cash piles, the focus is now shifting to gold. As the 68-year old Republic shrugs off the byzantine tax regime and unites in a one-tax system, it lends itself a great opportunity to squeeze out illegal gold hoarders. So far, the system allowed tax evaders to understate their income by not reporting all transactions, and thus save excise, value-added tax and octroi. The GST regime will herald a transparent and mandatory paper trail, and help tax sleuths with an effective data mapping for audit. Mandatory usage of PAN and Aadhar while filing GST returns will further help them track transactions.
Once GST is in place, no retail outlet will be able to purchase goods from wholesalers without an official bill since the former will need it to substantiate every purchase. The government can make the anti-black money network foolproof by making it binding on buyers to keep their bills and declare big purchases while filing I-T returns.
The gold market in India, like real estate, continues to be a goldmine of black money. Right under the nose of tax department, a parallel market of unimaginable proportions is thriving in the country with smuggled gold easily blending with the officially imported gold. Whenever airport customs become eagle-eyed and tighten their surveillance, smugglers reroute their consignments via porous borders of Myanmar-Nepal and Pakistan.
For years, thousands of retail outlets (jewellers) bought gold from the 'grey' market where gold is sold at a discount. Some buy a small quantity of gold from official channels – such as designated banks and state-owned Metals and Minerals Trading Corporation (MMTC), to prove their purity in income-tax raids.
A conservative estimate pegs the total smuggled gold in 2016 at 120-150 tonnes, nearly one-fourth of the official import of 600 tonne. According to World Gold Council, Indian gold demand in 2016 dropped to its lowest level since 2009 even before demonetization kicked in. However, during demonetization in November 2016, there was a sudden spike in demand as black money hoarders quickly converted whatever stashed away in demonetized high-value currencies, into gold bars. No wonder, India's official imports in November touched a whopping 100 tonne, nearly double the average monthly figure. There aren't any guesstimates available of the size of smuggled gold in November, though market sources swear by "enormous quantities".
In the run-up to GST rollout, there is utter confusion in the market. Speculation is rife over the expected GST rate. The GST Council is believed to have discussed levying 16% GST on gold jewellery, and 4% GST on gold bars while planning to slash customs duty to 2% from 10%. Any drop in import cost of gold will act as a deterrent to smuggling. Many argue for the combined GST and import duty to be in the 10-12% range, as against the existing duty of 12.5% (custom duty of 10%, and VAT and excise duty of 1% each).
Ideally, the GST rates should be announced only on the eve of the rollout, to avoid market players take advantage of the difference in rates and make an arbitrage windfall.
Source: dnaindia.com