Mumbai: India
is meeting stiff resistance in its drive to make the buying of gold
jewellery more transparent and to channel demand into paper gold to stop
the metal being used to hide billions of dollars of undeclared 'black
money'.
The
jewellery trade says the Narendra Modi government's plans to trace gold
deals is unworkable and won't deter holders of black money, or hundreds
of millions of Indians outside the tax net, from buying gold to keep
their wealth away from the prying eyes of the authorities. If the
proposals fail, gold inflows will continue unabated in a country that
accounts for nearly a fifth of global demand and stymie Modi's effort to
create a new asset class that could lure savers and back investments.
To
track larger gold deals, this year's budget declared that, from June 1,
customers would have to disclose their tax code, or Permanent Account
Number (PAN), for purchases above 100,000 Indian rupees ($1,580). But
jewellers - many of whom voted for Modi - have protested, delaying the
new rule. "No jeweller will refuse to sell just because the customer
doesn't have a PAN card. He will find a way to ensure the customer
leaves the store with jewellery," said Bachhraj Bamalwa of the All India
Gems and Jewellery Trade Federation.
Two-thirds
of gold demand comes from rural areas where jewellery is a traditional
store of wealth. Under Modi, India has opened 160 million new bank
accounts but half are idle, suggesting old habits die hard. And, in a
country of 1.25 billion people, only 140 million have PAN cards.
The
finance ministry's tax department has forwarded the so-called
'notification' that would put the PAN card rule into effect to higher
authorities, but "no decision has been taken so far", a senior official
said. "The final decision probably needs political approval as it could
have wider ramifications," added the official, who was not authorised to
speak on the record.
To
try and divert some of the estimated 300 tonnes of annual demand for
gold bars and coins to paper gold, the government also plans to issue
bonds linked to the bullion price. That's not an attractive option for
people who park illicit wealth in physical gold, however. "It is easier
to hide unaccounted money in gold compared to other asset classes like
property or shares. Such people are unlikely to switch to gold bonds,"
says Daman Prakash Rathod, director at Chennai-based wholesaler MNC
Bullion.
The
government has also proposed a gold deposit scheme to mobilise some of
the 21,000 tonnes of gold held by households and temples. Though the
formal notification to enforce the PAN card rule has yet to be issued,
jewellers have already found ways to beat it, by issuing many small
invoices or writing informal receipts. It's a reminder that
ill-conceived regulation can have unintended consequences, as happened
after India raised import taxes on gold to 10 percent in a series of
hikes to August 2013.
The
duty failed to curb demand, but revived smuggling networks which, the
World Gold Council estimates, imported 175 tonnes of gold in 2014. The
best way to curb gold demand is by reducing black money in circulation;
not by restricting gold trading, says a Dubai-based bullion supplier
who, like other market players, requested anonymity.
"People
are not accumulating black money to buy gold," he said. "It's the
opposite. They want to have black money and gold is providing them cover.
Source: July 13,2015, 05.40 PM IST | | Reuters
http://www.thehansindia.com/posts/index/2015-07-13/Modis-plans-to-trace-gold-deals-is-unworkable-says-Jewellery-trade-163216
