24-carat curse: Kerala's revenue from gold drops alarmingly

24-carat curse. Kerala's revenue from gold drops alarmingly
Representational image. Photo: Reuters
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Here is a riddle that Thomas Isaac will have to crack if he wants to put the state's finances back on track.

After the GST came into force, the tax on gold has gone up, from an effective rate of 1.25 per cent to 3 per cent. But rather than growing correspondingly, the tax revenue from gold has dropped steeply, from Rs 627 crore to Rs 220 crore. This is all the more alarming because Isaac, right after the GST was unveiled, had said that the state could easily collect Rs 700-1000 crore from gold sales.

Finance Minister T M Thomas Isaac's greatest GST hope, high tax compliance, lies shattered at least for the moment. “It is as clear as daylight that the gold sector is indulging in rampant evasion,” Isaac said. The finance minister feels that the post-GST situation, because of its messy roll out, is highly uncertain. It is now almost two years since the GST regime came into being. But the backbone of the system, the GST network, is still not in place. Result: not only are habitual defaulters having a free run but even reluctant ones are encouraged to evade tax.

24-carat curse. Kerala's revenue from gold drops alarmingly
Finance Minister Thomas Isaac

Point of no return

“Ever since the GST came into force on July 1, 2017, traders have been submitting only simplified 3B returns, not the detailed annual returns that offers a clear idea of their transactions,” Isaac said. The last date for submitting the annual returns for even the 2017-18 fiscal has been repeatedly extended. Many had alleged that the GST honeymoon, this temporary exemption from filing returns, was a vote-catching ploy by the BJP. As it stands, the deadline is June 30 this month.

According to Isaac, things can get better if the Centre adheres to at least this deadline. “Once we are able to scrutinise the returns, we can find out the excess input tax credit (traders are entitled to get back the tax already included in the cost of the raw materials that goes into the making of their products) the traders have claimed and also the details of transactions they have undertaken. Now without the returns, we are unable to do any such checks and therefore, the unscrupulous traders are having a field day,” Isaac said.

Road sans speed breakers

Even if tax sleuths get to comb the annual returns for mismatches, it will still be hard to keep a close watch on the movement of gold. The Centre has exempted jewellery from e-way bill rules. Meaning, traders transporting gold from one state to the other need not carry the electronically-generated bill. “This makes it impossible for the state to keep track of gold coming into the state,” Isaac said.

24-carat curse. Kerala's revenue from gold drops alarmingly

E-way bill is mandatory for the inter-state movement of goods worth more than Rs 50,000. It can be generated electronically by uploading relevant details which include the type of goods, the HSN code, quantity and taxable value, details of the recipient, details of the transporter, and vehicle number. An e-way bill must be generated before the movement of goods commences.

The gold that comes to the state untaxed is sold without taxes. “Gold trade is now so unorganized that we have dealers carrying jewellery in suitcases to the houses of customers. There are no bills or any record of transaction,” the minister said.

Manna from heaven

Import suppression is the other evil that robs the state of gold revenue. The state GST Department has now decided to open a long overdue channel of communication with national agencies like Central Board of Excise and Customs. This will allow the State Department to verify data with central agencies and, if mismatches are detected, can initiate revenue recovery proceedings.

It is officially estimated that gold and platinum imports worth nearly Rs 2,000 crore were being concealed annually by players operating in Kerala alone. If the GST Department comes upon a gold or platinum hoard that a dealer cannot account for, the entire cache can be considered a ‘deemed sale’ and GST imposed. This information exchange route, which was never resorted to before, is also seen as a subtle way of mobilising more revenue for the state without burdening the common man.

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