Necessary and not damaging, says IBJA. But will cut
gold sales 20-30% and grow smuggling, says GJF...
INDIA'S gold industry is split over a new
rule aimed at curbing "black money" and tax-dodging in the world's
second-most populous country – a rule which some jewelers say risks denting
demand and increasing smuggling into the world's No.1 gold consumer market.
Effective 1 January, the new rule forces consumers to
provide their Permanent Account Number (PAN) for personal tax purposes when
making transactions of Rs 2 lakh or more (200,000 Rupees, equal to just less
than US$3,000 today), including buying jewelry or bullion.
That's down from the previous level of Rs 5 lakh (some
US$7,500).
The lower threshold also applies to India's new Gold
Monetisation Scheme, aimed at unlocking some of the sub-continent's estimated
20,000 tonnes of existing private holdings by collecting jewelry in return
for a rate of interest, and refining it for sale to meet future demand.
Finally launched by Narendra Modi's BJP government last November, just before the peak gold-buying festival
of Diwali – eight months after it was first announced in the 2015 Budget – the scheme aims to
reduce the need for gold imports to India, now on track for an 11% annual
rise to more more than 1,000 tonnes on one estimate.
The world's largest gold consumer nation in 2014 – and the
heaviest gold-buying nation throughout history – India has zero domestic gold
mining output today.
China, the No.2 private buyer, has been the world's top
gold mining nation since 2007.
The lower PAN level is a "negative step for the
industry," says trade group the All India
Gems & Jewellery Federation (GJF), "as it will neutralise
benefits arising out of the monetisation scheme, which is positive."
Because "most of the rural buyers are not under tax
net and do not have PAN cards," Sreedhar said to The Economic Times
last month, the new rule risks discriminating against the gold's industry's
largest market. The GJF chairman says he also expects gold smuggling into
India to rise from around 100 tonnes to "about 300 tonne" per year
as a result of the change.
Wages in three-quarters of India's rural areas don't exceed Rs 5,000 per month (US$75), according to the
country's latest Socio Economic and Caste Census (SECC).
As it is, says Sreedhar, traditional gold retailers
"[are] not a source to attract black money, since there is a value
addition of 15-20% in developing [jewelry] products while bullion is a
preferred segment for investment by black money holders."
"The Permanent Account Number (PAN) provision is
applicable even on medical services, and consumers must accept it,"
Kamboj told the Business Standard, addng that India's world-leading
gold demand hasn't suffered since bullion import tariffs rose to 10% in 2013
in a bid to curb the country's large current account deficit.
Still, both the IBJA and the GJF are calling on the
government to reduce the current 10% import duty on refined bullion, amongst
other requests ahead of the 2016 Budget.
Last week the GJF also called for the Gold Monetisation Scheme to be
administered through existing jewelry stores, rather than the hallmarking and
refining factories still apparently completing the necessary paperwork – the
same call then made this Monday by the IBJA.
Take-up of the Gold Monetisation Scheme by households and
temples has to date been described as "lukewarm" and
"paltry", with only half-a-kilo of jewelry collected during the
scheme's first month across the entire nation of 880 million adults.
"If the government ropes in certified jewellers as
collection and purity testing centres under the Gold Monetisation
Scheme," the Times of India quoted the GJF, "it may help
in collecting over 100 tonne of the yellow metal in the first year of the
scheme."
Now the IBJA says it wants to set up 1,000 centers for
promoting, collecting and testing gold from households and temple trusts,
tapping its own network of member jewelers.
"These [jeweler-run centers] will on-the-spot assay
the purity of the gold consumers want to deposit, and also accept gold,"
says IBJA president Kamboj, reportedly awaiting government approval of his
proposal.
Already "dominating" silver trade flows in 2014
according to analysts Thomson Reuters GFMS, with imports growing 18% to a
record 6,843 tonnes – over one-fifth of total global demand – India was on track in 2015 to show a further 13% rise to nearly
7,760 tonnes according to the IBJA, if not 9,000 as the World Silver Council says on its
site.
Some 25-30% of India's current gold demand, meantime,
comes from "consumers directly associated with farming and related
sectors," says a report from specialist analysts Metals Focus – a number
likely to fall thanks to "growing urbanisation and the increase in rural
infrastructure."
The GJF puts rural Indian gold demand at 70% of the
nation's total, warning last Friday that "there will be protests in a major way", such as candle-lit marches
and strike action, unless the PAN threshold is raised.
