Tax-Exempt Gold Used to Evade Taxes

The tax-exempt gold bill, introduced to bring the gold market into the open for a limited time, was revealed to have been abused as a means to evade taxes by wholesale and retail dealers of gold. The original purpose of the bill was to cut down 10% of the value-added tax for imported gold bars (gold with a higher than 99.5% degree of purity).

The ruling in an appeal case for five jewelers, including Mr. Gong, 45, revealed they were defrauding their revenue by importing and circulating tax exempt gold bars unlawfully.

Forged Tax Invoice Issued; Value-Added Tax Wrongfully Returned-

Min Il-yeong, chief judge of Criminal Department Three of the Seoul High Court, sentenced Mr. Gong and Mr. Je, 44, to three years in jail and a 33 billion won fine, and three others, including Mr. Baek, 44, to two-and-a-half years in jail and four years probation against the original verdict of “not guilty” on April 27 to the accused for the unlawful refund of value-added taxes through a forged tax invoice.

The accused founded a company to trade tax-exempt gold with Mr. Baek as a front man in December, 2003, and bought 4,830kg of gold for 78.6 billion won and sold it to five wholesalers at 79.5 billion won with value-added taxes included. They issued a fake tax invoice to show 7.8 billion won of value-added taxes were included in the sale price and then dissolved the company to avoid a tax investigation. The 7.8 billion won was refunded to the five wholesalers who submitted the fake tax invoice to the revenue office.

The accused made unlawful gains of 1.5 billion won through wholesalers of gold from December 2003, to February 2004. “The accused, including Mr. Gong, are judged to have evaded taxes by issuing a forged tax invoice to receive a value-added tax return, and hiding income through a front man,” said the judge in ruling.

The Tax Exempt Gold Bill Abused for Tax Evasion-

The government introduced the exemption law for the dealers of gold bars or jewelers, who were pre-approved by the tax office for their qualifications, in July 2003. The original purpose of the bill, which will last until the end of next year, was to prevent gold smuggling for making profits by evading 10% of value-added taxes and 3% of tariffs.

However, the domestic gold market has since witnessed the rise of another form of tax evasion and smuggling. Gold smuggling was not reduced as expected, but surged, while the unlawful return of value-added tax through faked tax invoices became rampant.

Last September, an inspection by the National Tax Service revealed such unlawful refunds to the wholesalers of gold who abused the tax exempt gold bill amounted to 842.2 billion won.

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