IIM-A suggests tax relief for gold exchange

Institute also recommends that the exchange should be regulated by Sebi

Calling for a spot gold exchange in India for efficient price discovery of the precious metal, a report by the Indian Gold Policy Centre (IGPC) at the Indian Institute of Management, Ahmedabad (IIM-A) has suggested that investment grade gold traded on such an exchange should be exempted from indirect taxes like value-added tax (VAT) and goods and services tax (GST). In 2014, IIM-A and World gold council join hands to setup IGPC.

Another IGPC recommendation is that the exchange should be regulated by the Securities and Exchange Board of India (Sebi).

Earlier, BSE along with Indian Bullion & Jewellers Association had proposed to set up a gold spot exchange. After deliberations, the government had also said that such an exchange should be regulated by Sebi. BSE also held preliminary discussions with Sebi in this regard. According to sources, the regulator had told BSE that it could regulate the proposed gold exchange only if it traded in futures and forwards. The BSE is said to be tweaking its proposal in this direction.

“As in other Asian countries like China and Singapore, investment grade gold traded on the exchange should be exempted from indirect taxes like VAT and GST, but should be subject to Commodity Transaction Tax (CTT). This proposal to levy CTT in lieu of VAT/GST is likely to be broadly revenue neutral (if not revenue accretive) for the government,” the IGPC wrote in the report. As gold does not have a standard price in India, a national-level spot exchange would benefit all stakeholders by ensuring transparency in pricing and standardisation.

It would also help India evolve as a gold trading hub, the report suggests.

To understand the gold market in India and the scope for a gold exchange, IGPC conducted a field survey with leading jewellers, refiners, bankers, commodity exchanges and other participants in the gold value chain to discuss the need for a spot gold exchange.

“A spot gold exchange in India is eminently viable and would help create a vibrant gold ecosystem in India. It would lead to efficient price discovery, assurance in the quality of gold, active retail participation, greater integration with financial markets, and greater gold recycling. The gold exchange would also help in the gold monetisation efforts of the government,” the report states.

According to  the report, the proposed exchange should be promoted by neutral players who do not suffer from conflicts of interest and must be regulated by Sebi, which is the regulator for stock, derivative and commodity exchanges in India.

It must also seek global partnerships and collaborations to increase its reach. While the study was initially focused on price, many other interesting aspects of gold emerged in the due course.

Almost half of the participants in the survey said gold is a social asset.

Participants also discussed the hedonic value associated with such an asset and the norms of passing it on in the family. On socio-cultural side, gold was a gift almost mandated for ceremonies like weddings.

Concluding the report, IGPC wrote, “We tried to dig up reasons why gold was seen as a good investment. Beyond being an investment, there were also hedonic and normative roots associated with gold which did not allow it to be normally traded as other commodities.”