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GST regime: Tax hike could increase illegal gold sales

Under new regime, tax on gold has jumped to 3% from 1.2% previously

Reuters  |  Mumbai 

GST regime: Tax hike could increase illegal gold sales

A hike in taxes on in India could stoke under-the-counter buying and drive up appetite for precious metal smuggled into the country, where millions of people store big chunks of their wealth in and

As part of a new nationwide tax regime that kicked in on July 1, the Goods and Services Tax (GST) on has jumped to 3 per cent from 1.2 per cent previously, with traders and buyers saying the move will likely force more transactions into the black market.

"Three per cent is too much. I preferred to buy without receipts. The jeweller did not have any problem," said a middle-aged buyer, who declined to be identified after making purchases on Monday at the country's biggest market, Zaveri Bazaar in Mumbai.

Smaller shops could be more inclined to sell without receipts, potentially hitting at big jewellers that keep to the rules, said Harshad Ajmera, the proprietor of JJ House, a wholesaler in the eastern Indian city Kolkata.

"Just to save 1 percent, some customers were earlier buying without receipts. With the 3-percent GST, now many more will be tempted to make unofficial purchases from small jewellers," Ajmera said.

The tax hike could also encourage more smuggling into the world's second-biggest consumer, which buys almost all its abroad.

smuggling has been rife since India raised import duties on the metal to 10 per cent in a series of hikes to August 2013, looking to curb demand to narrow a gaping current account deficit (CAD).

The World Council estimates smuggling networks imported up to 120 tonnes of into India in 2016.

"The rate has increased the incentive to bring in smuggled The government should reduce import duty and make smuggling unviable," said Aditya Pethe, a director at Waman Hari Pethe Jewellers in Mumbai.

The country's legal imports typically stand at around 800 tonnes a year, with the metal used in everything from investment to religious donations and wedding gifts.

"A lower import duty would increase legal imports and ultimately legal Tax revenue would go up instead of going down," said Daman Prakash Rathod, director at wholesaler MNC in the southern city of Chennai.

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