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Gold Price? VAT Falls on the Shoulders of Consumers

Posted June. 29, 2005 06:01,   


“How much is a ring for a baby’s first anniversary?”

“The wholesale price is 60,000 won.”

“Do you accept credit cards?”

“(Looking awkward) Then, you have to pay 70,000 won, including card commission and VAT.”

On June 22, a jewelry shop in Jongno-gu, Seoul. A seller looked embarrassed saying, “Who buys gold with a credit card these days?” when asked if it could be purchased with credit card.

This shop is not the only place with two separate prices.

On that day, the Dong-A Ilbo reporting team chose and surveyed 20 jewelry shops at random at Jongno-gu, Jung-gu, Mapo-gu in Seoul where there are many jewelry shops, and 14 of these had two prices for the same item. Moreover, five of them didn’t even accept credit cards.

The cash sales price for the first anniversary ring of a baby from 14 shops that offered two separate prices ranged from 58,800~64,000 won, while credit card sales price ranged from 65,000~72,000 won. The credit card sales price was 10 percent higher than that of cash sales.

A jewelry shop in a department store was the only place that sold gold at one fixed price when paying by either cash or credit card. The price for a don of gold announced on that day was 57,000 won. The survey subject was an intaglio ring, which has the same wage for making.

The price of gold in the market varies. This is because much of the gold that wholesale and retail sellers handle are smuggled or are duty-free, and are illegally distributed in the market. The sales price by cash or credit card is the same for taxed gold. However, in terms of tax-free gold which was smuggled or illegally distributed, sellers cannot help but hand over a VAT (10 percent) and credit card fees to consumers if they pay with credit cards. This is because the sales record is permanent.

As a result, customers who buy gold with cash are unwittingly helping sellers evade tax.

One of the reasons for the corrupt gold distribution market is a loophole in the gold-related tax system.

Financial products and gold bars for precious metals are VAT-exempt, and the remaining is VAT-taxed. Due to this, smuggling aimed at taking advantage of price gap is continuing.

The reason why the government has specific gold VAT exemption is to legitimize the gold market by prohibiting smuggling. However, duty-free and smuggled gold is being mingled with taxed gold, leading to the formation of a multiplex price bracket. What’s worse, “the national treasury theft,” returning VAT which was never even paid in the process of re-exporting duty-free or smuggled gold, is taking place.

If normal, duty-free gold is VAT taxed during processing, and VAT will be returned when gold is re-exported. However, some traders snatch VAT which is never paid in the export process.

Yun Tae-ung, a gold banking expert at Shinhan Bank, asserted, “The gold market is seriously corrupt, as the government is imposing VAT which they failed to collect. They should revise the gold-tax system including the abolition of VAT.” Regarding this, Mun Chang-yong, in charge of consumption and tax at the Ministry of Finance and Economy, said, “Possible tax evaders are asked to put up collateral for the tax payment to prevent illegal gold trade from April, and additional steps will be discussed if any problems occur.”

Ji-Wan Cha Kyung-Joon Chung cha@donga.com news91@donga.com