Gold Monetisation Scheme: Silly To Ask
For Gold While The Taxman Watches
The Modi government appears to have made do with
lazily tweaking the old and failed gold monetisation scheme (GMS) from the
Congress era, instead of coming up with something truly innovative and likely
to work.
It thinks it is enough to offer an increased
interest of 2.5% on physical gold deposited for tenures of up to 15 years,
because it is more than the 1% that was previously offered. And since the
redemptions will be in terms of the expectedly enhanced values of gold at the
time.
The government’s self-regarding, if investor
unfriendly idea, is to reduce or halt the importation of nearly 1,000 tonnes of
gold every year, by tapping into the gold being hoarded ‘uselessly’ by citizens
and temples. So far in this fiscal, India has already imported 563 tonnes of
gold, the largest amount in the world, surpassing China’s 548 tonnes.
It is sadly apparent from this GMS, that the
government of India has a talent for announcing tenders and schemes doomed to
failure, crafted as they are by hidebound bureaucrats led by little new
political vision.
The sarkari babus, learned and qualified as they
are, routinely think in a very restricted manner based on precedent, and the
most innovation they can stretch to is incremental. The political leadership
has also decided not to break free and announce a dynamic scheme either.
What sense otherwise does it make to announce a GMS that
appears to be in cahoots with, and tied to the apron strings of, the central
board of direct taxes (CBDT)?
The GMS scheme, just announced, asks for permanent account numbers (PAN) allocated by the income tax department, to be posted alongside, if the gold value exceeds a paltry Rs. 50,000/-.
How does it ignore the fact that there are many
relatively poor people, especially from rural areas, with tax free and largely
cash-fed incomes, who have no PAN number, but who do possess at least Rs.
50,000/- worth of gold?
Like the laughable wealth tax limits which were
first raised before the failed tax was abolished altogether, it would make
sense to ask for the PAN/the Aadhar card number/passport number, etc. only for
identification purposes; in order to confirm the nationality and address of the
depositor.
But for this to work, simultaneously, it needs to be
made explicit that there would be no tax query whatsoever on any value of gold
deposited by Indian entities or individuals under this GMS, and this without any
upper limit.
The purpose of tapping this gold, as the prime
minister announced, is to help in nation building, reduce deficits, finance
infrastructure, reduce importation costs etc. So why obfuscate this laudable
set of objectives with sly attempts at snaring gold depositors, many of them
non-working women, in an income tax net?
Otherwise, almost the entire estimated hoard of
20,000 tonnes and growing, will find itself unable to respond to the
government’s inadequate scheme, even in small measure.
Many bank officials who will be part of the
collection machinery, state privately and from past experience, that the scheme
will be lucky to attract an aggregate of 20 tonnes of gold.
This, when the government ostensibly wants to tap a
resource worth at least $ 800 billion, nestling in private hands and temple
vaults. So why ask for PAN from people who deposit a mere $750 odd worth, or
more, of the precious substance?
Besides, a person in need of money, or wanting to
unlock and invest his gold value, is better off selling his gold at any
opportune moment, and investing the proceeds. He would have a choice of bank
fixed deposits, debt mutual funds, government gilt funds, company deposits, and
so forth, and for up to handsome double digit returns per annum.
If he is investing more than Rs. 49,000/- say, he
can happily split the excess amounts in the names all his family members
without coming to the notice of the tax authorities.
He would also have total control over the contours and tenure of his investment, the duration he wants to stay invested, particularly if he chooses open-ended funds, and have the ability to effect redemption on demand, should the need arise.
Also, the GMS scheme proposes to melt down jewellery
deposited at government approved mints, and many expect a loss of up to 30% of
the weight certified, due to purity issues and percentage of non-hallmarked
gold, quite often used in jewellery and ornaments.
Indians keep gold as a security, for traditional
ceremonies, and to pass on to children at marriages. Indian temples have tonnes
of gold and precious jewels, deposited quite often anonymously, by ordinary
devotees, though several have been endowed by kings, princes, noblemen, in
times past, as well as today’s rich men- industrialists, criminals,
politicians, movie stars.
Perhaps the government hopes to lay its hands on a
proportion of this ‘institutional’ gold, no questions asked, under cover of the
religious sentiments involved, via temple governing bodies in their sway. If
this is the case, they can, of course, meet their objectives substantially, and
still need not bother with stirring any hornets nests of sanctimonious
opposition. An opposition that would inevitably come, if source of funds and
tax implications are ignored.
This could well be the political calculation, to
make sense of an otherwise unexciting and vanilla offering.
Otherwise, it must be understood that the bulk of
the 20,000 tonnes of gold estimated to be tucked away in personal safes and
temples, has most likely been bought in unaccounted for, non-tax-paid, cash, and this
ever since independence.
The gold hoarded is also partially smuggled into the
country. This process is ongoing to this day, in addition to the official
imports, as seizures from time to time reveal.
Another major part of it is inherited, within families, and from old times when the Mughals, the Princely States and British Raj, got all the tax money they wanted from land revenues and ad hoc impositions. And there was no concept of income tax, or black and white money either.
Yet another large stash of princely gold and jewellery is rumoured to be secreted in bank vaults all over Europe and America.
And of course, a good deal of it came from looting
and pillaging in conquered territories, usury, tithes, and tributes from
vassals. These events were all par for the course in previous centuries. So PAN
numbers for all this does seem a little silly.
In addition
to the GMS, the government is also issuing gold coins of 5/10/20 gm weights,
for the first time. It has also announced a Sovereign Gold Bonds Scheme wherein
investors can buy gold denominated paper bonds, representing different weights
of physical gold, carrying interest rates of up to 2.75% .
But bottom line, the government will succeed in
these schemes if it can inveigle rich temples to invest in them, and deposit at
least some of their physical gold. The public at large may however show wisdom,
and choose to stay away from these tepid and flawed schemes.
For: Sirfnews
(1, 168 words)
November 6th, 2015
Gautam Mukherjee
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