By Tarunkumar G. Singhal, Raman Jokhakar Chartered Accountants
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Gold imports have skyrocketed despite the global price of the yellow metal weakening. That signals that gold has not lost its sheen as an investment choice. The government is worried that the surge in gold imports could undermine the country’s balance of payments position. The worry is not misplaced. India’s current account deficit is within limits of prudence, due to the sharp drop in global crude prices, but splurging foreign exchange on imported gold will negate these gains. Anecdotal evidence suggests that people are using their unaccounted money to buy jewellery and bullion, shunning financial instruments that create audit trails. So, the need is to establish audit trails of these transactions. One way would be for the Centre to impose a nominal 1% excise duty on jewellery, to create audit trails and curb the use of black money to fund gold purchases.
Jewellery purchases in cash of over Rs. 5 lakh is captured under the annual information returns (AIR) that identify potential taxpayers by examining their expenditure patterns. AIR creates an audit trail too, but there are no trails for cash purchases below Rs. 5 lakh. The import surge is being attributed to a relaxation of the 80:20 scheme — at least onefifth of every lot of imported gold is exclusively made available for exports, and the balance for domestic use — for star and premier trading houses. However, the government should desist from any attempt to restrict the demand for gold through quantitative restrictions or impose higher import duties, as it would only encourage smuggling.
(Source: The Economic Times dated 17-11-2014)
