Just few days back the Goods and Services Tax (GST) was made live in hush. GST was termed as the most important reform of the Modi Government. But inadvertently this tax reforms is helping money laundering activities in some sectors like the Gold Imports.
Post implementation of GST, India witnessed significant growth in the Gold Coin Imports. Most of these exports are associated with the South Korea alone.
Importers are importing coins as they offer a greater scope for over-invoicing than gold bars. Through over-invoicing, it is easier to illegally take out foreign currency out of the country.
How GST is Boon for Gold Laundering ?
Goods and Services Tax on the Gold is now reduced to 3%. Goods and Services tax replaced all the existing indirect taxes including customs duty. This opened the floodgates of the opportunities for the importers of the Gold. India signed treaties with other countries under Free Trade Agreements and Comprehensive Economic Partnerships which allows gold to be imported without paying customs duty.
How Gold Laundering Works ?
Indian Gold importer registers an Gold export company in Korea. This company source coins from manufacturers. These manufacturers source the raw gold from the Indian company’s UAE, Hong Kong or Singapore arm.
The cost of manufacturing a coin is about 0.3 per cent of the gold value, and the manufacturer adds a markup of 2 per cent to the manufacturing cost. This invoice is sent to the Indian importer’s Korea- registered company.
The exporting firm ships the gold coins to its Indian sister company by adding another 2 per cent.
As there is room to value the exporting gold is very wide, given the 10 per cent duty difference for gold imports, it is easy for the Indian importer to over-invoice and make the payment officially through a valid banking channel.
Impact on Indian Banks
Though the whole transaction is orchestrated to remit the money out of the country without having the effect of taxes, banks become victim of the whole process. Unknowingly banks are becoming party to this money laundering activity as they are not equipped to understand the repercussions of the gold trade and have very limited resources to exercise due-diligence in such transactions.
First Published on http://indiaforensic.com/certifications/gst-helping-money-laundering-activities/