Finance Ministry tightening surveillance of gold smuggling ahead of planned tax hike

TOKYO -- The Ministry of Finance is requesting tightened identification checks by gold dealers and that major trading companies and other firms refrain from purchasing smuggled gold in hopes of curbing the expansion of the gold-smuggling business.

The new measures are part of a ministry effort to crack down on smugglers who bring gold into Japan without paying consumption tax and then resell the metal at a price including tax for a large profit, especially amid worries that smuggling will spread with the planned hike in the consumption tax to 10 percent in October 2019.

When gold is brought into the country from abroad, it must be declared to customs and consumption tax paid on it. However, smugglers who do not make the appropriate declarations bring the gold in without paying the tax, and gain an automatic profit of 8 percent when reselling the gold with tax included. When the consumption tax was raised in Japan from 5 to 8 percent in 2014, there was a sharp rise in smuggling cases. Over a one-year period up to June 2018, there were 720 gold smuggling cases processed by Japanese customs, for a record tax evasion total of some 1.5 million yen.

In addition, the cost of moving the gold has also dropped due to a reduction in the prices for airfares, supporting the rapid expansion of the operations, said a senior official from the Finance Ministry's Customs and Tariffs Bureau. This has mainly been due to the introduction and increase in flights by low-cost carrier airlines, on which one can travel between nearby South Korea and the southern Japanese city of Fukuoka roundtrip for under 20,000 yen. Of the 720 punished smuggling cases, roughly 40 percent of the gold came from South Korea, and discoveries at Fukuoka Airport have also reportedly increased.

Still, the cases that customs were able to uncover and punish were only "the tip of the iceberg," the official said. While 5 metric tons of gold were imported into Japan in 2017, 215 tons were exported. A representative from the Finance Ministry said, "Only around 50 tons would have been possible for export after accounting for domestic production and consumption, so there is a high possibility that the remaining 160 tons or so of the exported gold had previously been smuggled into the country." The ministry puts the estimated amount of consumption tax evasion for that amount of the metal as being as much as some 60 billion yen.

As there is a risk that smuggling cases will increase even further with the planned tax hike next year, in addition to revising the Customs Act in April this year to significantly raise the fines leveled against smugglers, the Finance Ministry is also strengthening surveillance along domestic transportation routes as well.

A December Cabinet decision concerning the framework for tax reform included a provision requiring gold dealers to submit identification documents of importers from whom they buy their gold. If they are unable to present such documentation, the dealers are taxed the consumption tax amount the importers should have paid. As for trading companies that handle the majority of gold exports, the ministry made a strong appeal for them not to handle smuggled items.

A representative from one major trading company commented, "We already have countermeasures in place, and we will continue to exchange information with related government ministries and agencies."

(Japanese original by Daisuke Oka, Business News Department)