24 - 30 January 2002
Issue No.570
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Al-Ahram Weekly Online 24 - 30 January 2002 Issue No.570 |
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Golden fleece?
The spat over a new levy on gold reveals how full of pitfalls taxing industry has become. Sherine Nasr investigates
After two weeks of knotty negotiations, gold traders and the Sales Tax Authority (STA) will ask the State Council to decide whether slapping an increased sales tax on gold violates the constitution.
The first stage of the now three-part sales tax was imposed in 1991. A decade-long hiatus followed, then two new stages were added in June 2001. STA, though, gave gold traders a six-month moratorium on payment of the latest tax rise, during which they only had to pay the one per cent sales tax imposed 10 years before. That grace period expired last month. But after a spasm of protest from traders, it has been extended.
Respite for the traders may be brief. Mahmoud Mohamed Ali, head of STA, has made it clear that he intends fully to implement the second and third stages of the tax. That means a final gold product will be taxed at 10 per cent of its total value. Gold traders are already charged a 32 per cent income tax each year.
Nor is bigger tax the only thing to vex traders. STA has required them to issue a tax invoice for every single item they sell. The idea, of course, is to identify the actual volume of activity of each trader.
That, in fact, rather than concern for the benighted traders, is the reason behind the six-month grace period. Ali says the pay delay was to give the authority time to assess the situation in the market and judge how efficient the tax invoices would be in tracking traders' sales activities.
Needless to say, both traders and manufacturers resist the tax hike and the invasive scrutiny of their trading habits.
"A ten per cent tax on the total value of a gold item is ridiculous," says Rafiq Abbas, chairman of the Gold Division (an affiliate of the Chamber of Metallurgical Industries), which represents the industry in its negotiations with the government. Abbas thinks only the added-value of a gold item, not the material itself, should be taxed. "Gold does not perish. It is reshaped an infinite number of times. So it is ridiculous repeatedly to impose a ten per cent sales tax on the same amount of gold," he argues.
In reply, STA points to other metal industries. "According to the law, raw materials, including metals, are not taxed. But once a material is manufactured, it becomes tax due," argues Mohamed Nasr, Head of STA's executive department. "This applies to iron, aluminium and gold as well, which is a metal." he points out.
Nonsense, think the gold traders. Says Abdel-Messiha, a gold manufacturer: "It has been futile getting the tax people to understand that gold is not 'just a metal.' Gold is actually used as a cover for printed currency. It is money, and money cannot be taxed."
Gold traders have other reasons to worry. They say the industry has suffered ever since the original sales tax was introduced. They argue that heavy tax has brought fraud and unfair competition to the market. "Rising cases of cheating in the market are a direct result of putting a sales tax on gold," fumes Abbas. Indeed, there are rumours that more and more goldsmiths are dodging official registration. Instead of stamping their wares at the Stamping Authority, they fake the stamp themselves. "To be involved in these cases of commercial fraud was never the choice of many gold manufacturers. They are simply trying to evade an unfair tax which, they believe, will eventually drive them bankrupt," Abbas claims.
All this causes extra grief. Stamping Authority inspectors often retain gold items, as they try and work out whether their stamps are official or not, though traders say that the phoney stamps are so good that even the most seasoned inspectors have difficulty spotting them.
The new invoicing requirement is a bane, too. Because of the high rate of income tax, gold traders do not usually report all their trade.
"This has been a gentleman's agreement between the goldsmiths and the Income Tax Authority to impose a high tax, yet ignore the actual trading volume of each goldsmith," says Abbas.
But now, as STA requires a tax invoice each time a trader sells an item, the goldsmiths will be totally exposed to the Income Tax Authority, too. "We were promised that the rate of the income tax would be reduced once the sales tax is fully imposed but nothing has been done. Unfortunately, there is no mutual trust between both parties," laments Messiha.
The problem is an old one. Rickety tax policies creak alarmingly whenever authorities try to update them, and fraud rises. The arguments of both sides are well- worn, too. The authorities blame the traders for unscrupulous accounting; the traders say they wouldn't be forced to it if the tax regime were better thought out. There is a final kicker: the global market. "It is never our choice to disobey the law, but taxes in their current form will definitely destroy an age-old profession," says Abbas. As high taxes make it costlier to produce gold locally, he argues, it will soon become cheaper to import ready-made gold items from neighbouring countries. The way things are going, if Abbas is right, there may soon be no gold industry left to tax at all.
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