Traders at the Shanghai Gold Exchange. China is planning to audit all the country’s gold traders as the government presses ahead with a clampdown on the practice of using fake precious metals exports to mask capital flows.
Bloomberg/Beijing
Chinese tax authorities will audit all the country’s gold traders, said people familiar with the matter, as the government presses ahead with a clampdown on the practice of using fake precious-metals exports to mask capital flows.
An annual list of businesses to face mandatory audits in 2015 include gold traders, exporters taking advantage of tax rebates and companies involved in mergers, stake sales and other equity transactions, said the people, who asked not to be identified because the audits haven’t been made public.
Auditing the traders highlights continued government suspicion that over-invoicing for gold exports has been used as a way to evade capital controls. Chinese auditors have also rung the alarm over metals processors profiting from loans backed by falsified gold transactions. If the audit uncovers major tax violations within the last two years, authorities will then probe 2015 operations as well as work from previous years, according to the people. Local tax authorities began the audits this month, they said.
The State Administration of Taxation didn’t immediately respond to calls for comment. The planned audit was reported on accounting blogs in recent days.
While the order doesn’t go into detail, it may apply to firms that import and export gold, as well as companies that buy bullion to make products such as jewellery, according to traders including Liu Xu, investment director at Shanghai Jiuhe Asset Management Co. “To my knowledge, it’s the first time such a sweeping audit has been performed on the gold industry,” Liu said in a phone interview. “It’s likely to deter those companies that use precious metals for financing and arbitrage.” Government investigators last year scrutinised trade in precious metals, including jewellery, after exports rose to about $10.8bn in September from $1.39bn a year earlier.
The sectors facing mandatory audit fit together because traders have sometimes falsely classified precious metals to take advantage of export rebates. In one case last year, outbound shipments of silver were classified as acoustic wire to take advantage of the 17% rebate aimed at encouraging high-end domestic manufacturing, according to Liu. China was the world’s biggest bullion consumer in 2014 and has pushed to expand the gold trade by establishing new pricing benchmarks. China started offering international institutions access to yuan-denominated gold contracts in Shanghai’s free-trade zone in September.
Gold for immediate delivery was at $1,229.24 an ounce at 2:58 pm in Shanghai, up 3.8% this year. Spot gold traded at 245.42 yuan a gram ($1,230.29 an ounce) on the Shanghai Gold Exchange.
