If the gray gold market could be solved, it could earn the government a bounty through higher tax collections

Gold! This arouses many emotions in the mind of an Indian family. When the demand for gold picks up, the economy makes the decision maker’s plan shine. The joy that jewelry brings to women can be inexplicable to many. The revenue comfort that gold taxes can give policy makers can similarly be inexplicable. Adding more jewelry makes perfect sense for the family. Multiplying tax revenues on gold has the same effect for those who make politics. Over the years, government policy has sought to balance the sometimes conflicting demands

emotion and economy. Unfortunately, the two just don’t seem to match. With taxes encouraging the gray market and weak enforcement to control it, India could be running out of timber for trees. Industry estimates suggest that in different parts of the country, 70-80% of gold demand is met by the gray market. The gray market could include financiers, trading channels and jewelers, for whom higher import duties on gold are an arbitrage opportunity. If she chooses to address the gray market issue in gold, the beneficiaries could be an unlikely set for Finance Minister Nirmala Sitharaman. “If the economy around gold

can be simpler, our black money worries of the country can be solved to a large extent,” said MP Ahammed, Chairman of Malabar Group of Companies which operates 280 jewelry stores in India and abroad.


High import duties are considered one of the main reasons for the prosperity of the gray gold market. Contraband gold ends up in consumer jewelry retail outlets and no tax is paid on its sale. Unscrupulous jewelers offer the possibility of selling cheaper gold jewelry to customers without a tax bill, denying their rights and causing a loss to the public purse. Sometimes black money is also stored in the form of gold bars because it is very liquid and can be converted easily. India plans to export $70 billion worth of jewelry by 2025, up from $35 billion in 2020. Ambition to double business faces immediate hurdles as gem and jewelry exports have dropped to $25.30 billion in FY21. A favorable tax regime could spur this growth. It is estimated that Kerala, Tamil Nadu and Punjab are the largest consumer markets for gold jewelry. For the country’s gold trade to grow, the gray market challenges faced by consumers and businesses must be addressed. The industry estimates that 20-30% of gold jewelry sales are through organized retail stores. Multiply the figure for the whole country

and suddenly a new source of revenue for the government could be created by adjusting the import duty to begin with. Imagine the increased tax revenue for the central and state governments if the business thrived in the same way in other states!


If the government can reduce import duties on gold, it might well want to make other changes that could bring a breath of fresh air.


“All gold transactions can be controlled and monitored through electronic governance and the government’s use of digital technology to ensure transparency. We have also asked for a reduction in import duty to 4% and GST to 1.25%,” said MP Ahmad. A single disclosure could be another option for the government. The six-digit alphanumeric code for the unique hallmark identification (HUID) can be assigned to each piece of jewelery at the time of hallmarking and is unique for each piece. Industry discussions also confirm that fake HUIDs are given with gold jewelry, which will require strict enforcement to ensure unsound practices can be stopped. Industry bodies are also calling for a reduction in taxes and duties levied by the government. “In the Budget Estimates, we have written to the Minister of Finance to lower import duties and GST on gold. This would give a huge boost to domestic consumption and also deter its illegal parallel trade,” said said Ashish Pethe, chairman of the All India Gem & Jewelery Domestic Council.

Ashish Pethe

Several countries and regions – USA, UK, China, Singapore, Malaysia and GCC countries – have no import duty on gold. This discourages the gray market, which can be controlled. It also helps to keep tabs on the shadow economy. Can India add some extra shine to the gold trade? Women who buy jewelry might be happier, commerce might welcome this decision, and policy makers will have enough reason to encourage the multiplier effect.

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