Gold amnesty scheme: Tax cheats must be taught a lesson, but targeting households, temple treasure will be a tricky affair

The government reportedly plans to come with an amnesty scheme to bring out the hoarded gold in the domestic economy. Gold is one of the tools how tax cheats have been parking unaccounted money all these years. Buying the yellow metal using cash has always been and, even now to an extent, continues to be a favorite channel for those with black money. Even at the time of 2016 demonetisation, there were reports of rampant buying of gold to escape scrutiny. Later, this gold typically changes hands in secondary markets without documentation thus finding its way back to the cash economy once again. [caption id=“attachment_1372145” align=“alignleft” width=“380”] Representative image. AP[/caption] Understandably, the idea of launching an amnesty scheme (with a 30 percent tax on total value) and imposing a hefty fine/punitive measures after a cut-off date is to unlock the value of hoarded gold. India is estimated to have 20,000-30000 tonnes of gold in households and with institutions. Much of this stock will be in the form of ornaments stored in households, while the remaining being in the form of coins and bars. The problem with India’s ‘gold’ economy is that Indians do not see gold as merely an investment asset. They often attach an emotional connect to the yellow metal linking to tradition and beliefs, especially when the precious metal is received in the form of inherited gold ornaments. In the past, the governments have tried multiple ways to cure Indian’s gold fever by restricting imports and offering financial products (such as gold ETFs and gold deposits in banks) to cut down consumption of physical gold but none worked to the desired effect. Indian’s love for gold has continued unabated. If you see the data on gold consumption by Indians compiled by the World Gold Council (WGC), except a dip in the year of 2016 (the year of demoetisation), gold consumption has remained almost the same in recent years, indicating that India’s penchant with gold hasn’t changed much. The consumption, however, has fallen from the pre-2010 levels. But the final picture will emerge only if one takes into account the fact that gold is also being imported and consumed in the country through illegal channels. This traditional Indian approach to gold will be a major factor why it will be difficult to pull off a gold amnesty scheme in the country. The response is likely to be limited as we have seen in the case of an earlier amnesty scheme Pradhan Mantri Garib Kalyan Yojana (PMGKY), also known as IDS-II, launched in 2017, launched shortly after the demonetisation exercise.

Even though the proposed scheme is targeting tax cheats with hoarded gold, the amnesty scheme will likely prove to be a nightmare to those households which possess ancestral gold from generation to generation. Taxing this gold stock will be a tricky exercise and can backfire unlike the banning of high-value currency notes in 2016.

This is because unlike cash, gold stocked in households doesn’t come out in circulation for any economic activity in most cases. Taxmen can’t launch a blanket search in households like they did in the past for stashed unaccounted cash. Another issue will be how to approach centuries-old gold treasure stocked in religious institutions, mainly Hindu temples and how to correctly estimate the value of such gold treasure. Gold ornaments are made in different purity, hence cannot be valued using the same yardstick. Also, there is a time value for gold ornaments that are part of the temple treasure. Take the case of the gold treasure found in the cellars of the 16th century Sri Padmanabhaswamy temple in Thiruvananthapuram, Kerala. The value of the gold is estimated to be around Rs 90,000 crore going by a conservative estimate. A good chunk of the treasure dates back to centuries ago when the ruling kings used to gift large quantities of gold to the temple deity every year. Another case in hand is that of Tirupati temple in Andhra Pradesh which is reportedly sitting on 9,000 kg of gold stock. Will the scope of the new amnesty scheme cover these institutions, which could then trigger a controversy politically? Logically, the proposed scheme will have to approach this issue carefully. As far as the general households are concerned, the government can still make an attempt to make the proposed amnesty scheme attractive by, 1) keeping the tax rates under the scheme low, 2) cut off quantity per households high considering tradition and culture 3) assuring that those willing to come clean on their extra holdings will not be haunted by taxmen later in this connection. Post the PMGKY, many who had disclosed their assets reportedly received messages from the tax department. Firstpost independently couldn’t verify this. The bottom line is: While the government’s intent to continue with the battle against black money is laudable, past evidence shows that the gold amnesty scheme is unlikely to elicit major success in the Indian context and will likely prove to be even a trickier affair for the government as compared to the chaotic demonetisation implementation. (Data inputs by Kishor Kadam)