PMO lens on spike in gold smuggling

A spike in gold coming into the country illegally through special economic zones (SEZS) has attracted the attention of the

Prime Minister ’s

Office (PMO), which has sought a report from the

Central Board of

Indirect Taxes and Customs

(CBIC).

The report should contain details about official gold imports, its usage in the domestic market, smuggling trends, possible curbs to mitigate the negative impact of gold imports on the trade deficit, and the current account deficits, said sources in the government.

In the current fiscal year (2019

20 or FY20), the country’s gold imports till

August touched

$14.5 billion, according to the commerce ministry data. Since

January, the import of the precious metal has recorded double-digit growth, except in February. About 1,400 kg of gold being smuggled in was seized by the Customs till September.

Following this, the CBIC had submitted a comprehensive report a few days back, explaining the causes behind increased gold smuggling.

They said the increase in misuse of the SEZ scheme for exporters was the cause in most cases.

The report suggested certain measures and tightening of these schemes, said an official privy to the development. “No gold schemes are full proof. These are in fact prone to misuse,” said the official. He added there was a significant increase in the export fraud through the SEZ units across the country.

The official also said no new method had been identified. “The existing gold schemes are being exploited by the smuggling network.”

Intelligence shows that a majority of the cases that were detected has misused the various gold manufacturing schemes, designed by the government to encourage export of gold jewellery. Traders import high-grade gold, make impure jewellery and divert the remaining gold to other markets, said sources.

In many cases, so-called traders declare the export of 22 karat jewellery, which was later found to be low-value metal with zero gold content, they said.

The CBIC report highlighted the number of cases along with the various modus operandi used by traders to divert gold overseas especially West Asia.

Officials of indirect taxation also pointed out that hike in the gold duty may have led to control the current account deficit but it has increased its demand in the black market. The government in the Union Budget in July had increased the import duty on gold to 12.5 per cent (effectively 15.5 per cent with the goods and services taxes) from 10 per cent, making the metal lucrative for smuggling.

The data till June suggests that the Customs authorities have seized 23 per cent more illegal consignments of the precious metal in the April-june quarter compared to those in the same period last year. In the first quarter (Q1) of 2019-20 (FY20), the department seized 1,197 kg gold, compared to 972 kg in the April-june quarter last year.