Fancy a Vertu Signature phone or perhaps a Hermes Birkin handbag? How about that piece of bling sported by your favourite actress in that advert? Even if you have the moolah to spare, you’d best get into the habit of thinking before you spend. Because the government, as part of its stepped-up efforts to prevent money laundering, is planning to make all retailers report purchases of above Rs 6 lakh to the Financial Intelligence Unit (FIU).
FIU, under the finance ministry’s Department of Revenue, is the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies.
“Globally, in most countries, the limit for reporting such transactions is set at $10,000…Discussions are on to decide the limit, with consensus veering around Rs 6 lakh,” a government official told The Hindustan Times on condition of anonymity. This new proposal will mainly target jewellery and luxury goods.
The move is expected to not only help Income Tax Department to identify individuals whose purchases are disproportionate to their known sources of income but also help government agencies such as the Enforcement Directorate to sniff out money laundering activities.
One of the main electoral promises of the Modi government was to track down black money and fight against unaccounted wealth. To that end, it even set up a special investigation team in its very first month. The following year it enacted the Black Money (Undisclosed Foreign Income and Assets) Imposition of Tax Act and amended the Prevention of Money Laundering Act (PMLA) to enable attachment/confistication of assets equivalent to ‘proceeds of crime’, and the Benami Transactions (Prohibition) Amendment Act arrived in 2016.
But less known is the government’s focus on data mining as a tool to fight black money. Operation Clean Money, launched by the tax department in January 2017 to detect black money generation post demonetisation, is just one example of how it is using advanced data analytics. More recently, IT sleuths reportedly used big data to track down Rs 85 crore in cash, bullion and jewellery stashed away in private lockers in Delhi. Similarly, the proposed data collection drive from retailers will help the FIU to ferret out transactions that do not match the tax payers’ profiles.
“Though cash transactions are banned above Rs 2 lakh, recent data shows that accountants are being used to creatively flow black money through the legal banking channels. A threshold for reporting purchases will help us track cases of disproportionate assets, corruption money, and frauds,” an official in the Enforcement Directorate (ED) told the daily.
However, some experts point out that since there are already various checks and balances in place to monitor transactions, this new proposal may serve little purpose beyond increasing paperwork for merchants. It could also hurt the luxury brands segment and the jewellery business. Demand for both categories had fallen sharply when the government made PAN card mandatory for cash transactions above Rs 50,000 and capped cash transactions post demonetisation.
Jewellery demand in India again fell by 25% in the third quarter of 2017 to 114.9 tonnes, compared to the sales of 152.7 tonnes in Q3 of the precious fiscal. This was after three consecutive quarters of growth and large dip in sales in the previous years, according to World Gold Council (WGC) data. While the introduction of the 3% Goods and Services Tax (GST) was a contributing factor, the government’s attempt to bring the gems and jewellery industry under the PMLA umbrella in late August made matters worse. This made it mandatory for gems and jewellery dealers to report all sales above Rs 50,000 to the FIU but due to stiff opposition from the industry, the government rolled back its order in early October. Back then, Revenue Secretary Hasmukh Adhia had said that the government will soon notify a new threshold for the value of transactions in gold, silver and precious stones such as diamonds which have to be reported to the authorities in order to check the diversion of black money into bullion.
If the new proposal is passed, then hoarders will no longer be able to rely on bullion, which is a big favourite as recent income tax raids prove.