Indian jewellers have received surprise tax notices asking
them to turn over money they made from customers who scrambled to buy gold
after Prime Minister Narendra Modi's 2016 ban on high-currency notes, according
to a dozen jewellers and tax officials.
When Modi announced a sudden ban on Rs 500 and Rs 1,000
notes on November 8, 2016 to weed out undeclared cash, clients thronged the
store of one Mumbai-based jeweller, clamouring for necklaces, rings, bullion -
anything gold.
The jeweller - who asked to only be identified by his
surname, Jain, to avoid retribution - said he sold his entire stock at a steep
premium that day and pocketed revenue usually earned in two weeks.
Three months ago, he received a tax notice asking for the
source of those earnings and ordering him to turn in all revenue made that
night, under suspicion that black money was behind the purchase.
Jain appealed against the order, but as per Indian law had
to deposit 20% of the disputed amount.
"If we lose the case, then we have to close the
business to pay the remaining amount," said Jain.
About 15,000 Indian jewellers have been sent tax demands
similar to Jain's, said Surendra Mehta, secretary of the India Bullion and
Jewellers Association.
Mehta estimated tax authorities are seeking around Rs 50,000
crore ($7 billion) from people in the gems and jewellery sector.
"This could create a problem for the industry in the
long run as those who need to pay 20% to appeal may have to purchase bullion or
jewellery on credit," said Mehta. If they lose their cases, the jewellers could default on the loans,
potentially hurting suppliers and bankers, he said.
Tax authorities are within rights to demand tax on past
revenue, which takes time to scrutinise, but it is highly unusual for officials
to demand the entire revenue as tax.
A tax official based in Kolkata, likened the exercise to
"being asked to dig up a dead body after three years, find out how the
person died and catch the killer."
Two senior tax officials said the department has sent thousands
of notices this year, including to jewellers, demanding an estimated Rs 1.5-2
lakh crore in taxes.
The Central Board of Direct Taxation and the Finance
Ministry did not immediately respond to a request for comment, and the
government has not spoken about the tax demands on the jewellers.
The move highlights Modi's push to shore up revenue as
India's once-booming economy grows at roughly 11-year lows. India's corporate
and income tax collection for the current year is likely to fall for the first time
in at least two decades, several senior tax officials have said.
SCRAMBLING TO FILL COFFERS
Officers, whose promotions and transfers hinge on meeting
the government's annual tax targets, are scrambling to at least partly meet the
shortfall ahead of the end of the fiscal year on March 31, a half-dozen tax
officials said.As part of its drive to beef up revenue, the government has
extended an amnesty scheme to settle disputes stuck in litigation to March-end.
Authorities are also investigating maids and drivers, suspecting that their
wealthy employers used them to hide undeclared funds after demonetisation,
officials told Reuters.
The push risks re-igniting complaints that New Delhi is
being overbearing in its collection drive, an issue that was spotlighted when a
prominent coffee magnate who committed suicide last year left behind a letter
blaming persecution by tax officers.
Three of eight jewellers interviewed by Reuters said
authorities had demanded the full amount they made on Nov. 8, 2016, while the
others declined to share details.
One tax officer said the department was only levying a tax
on sales of previously undisclosed stock. He added some jewellers were
suspected of accepting the annulled notes after Nov. 8 and backdating receipts
to make it seem the purchases were made when the bills were still legal tender.
Another Kolkata-based tax official said the department was
likely to lose its cases against the jewellers. "I know it is illogical...
(But) at least the 20% will help add to collections this year," he said.
