Gov’t is going for the gold

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Gov’t is going for the gold

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As part of efforts to normalize the underground economy, the government said yesterday it will set up a gold exchange under the securities exchange operator early next year. Establishment of a spot gold exchange is expected to enhance transparency in gold transactions, which so far have been done mostly under the table, and help raise tax revenue.

According to the Financial Services Commission (FSC), a spot gold exchange will open in the first quarter next year so gold can be traded in an open market just like stocks.

The move comes as more than half of gold transactions in Korea are estimated to be done covertly, hence not subject to taxes.

“Due to the shady market, consumers tend to not trust the quality and price of gold,” said an official from the FSC.

The FSC’s decision to set up a spot gold exchange came after it discussed the matter with the ruling Saenuri Party. FSC officials including Chairman Shin Je-yoon and ruling party lawmakers including Floor Leader Choi Kyung-hwan met in the morning and agreed to establish the over-the-counter gold exchange at Korea Exchange headquarters in Yeouido, western Seoul.

“Both ruling party and the government reached an agreement to offer support for the settlement of the official gold market,” said Kim Tae-heum, spokesman of the Saenuri Party. “The party will support the introduction of bills related to this matter.”

The FSC will start amending rules needed to establish a spot gold exchange in September to push forward the plan of public gold trading from the first half of next year.

Under the plan, the financial authority is expected to certify gold dealers including wholesale distributors and importers to be in charge of selling and buying spot gold at the bourse.

According to the FSC, the Korea Exchange and the Korea Securities Depository will operate the gold bourse.

“The two main reasons why people buy and sell gold secretly are because they don’t want to pay taxes and also they don’t want to reveal the fact that they own gold,” said Seo Tae-jong, a director-general at the regulator.

Statistically, more than 60 percent of gold sales in the country are reportedly under-the-table transactions, and the amount of unreported tax is estimated to be about 300 billion won ($268 million) annually, Choi Kyung-hwan, the Saenuri floor leader, said yesterday.

“Currently, the nation’s gold market is regarded as one of the most shadowy businesses of the underground economy,” he said. “This kind of informal exchange harmed the trust and the effectiveness of the entire gold market. Producers can’t demand proper prices, and customers also can’t trust the quality and the price that producers argue.”

In Korea, transactions of gold bars are made anonymously by cash through private vendors or jewelry shops, and many consumers can evade value-added taxes.

There are concerns, meanwhile, that making gold-trading activities more transparent will throw a wet blanket on the gold market as consumers usually consider buying gold to avoid paying tax.

Previously, the government had considered the launch of a spot gold exchange in 2010 but an official from the FSC said that the plan was scrapped “due to problems in the legislation process.”

BY LEE EUN-JOO, KIM HEE-JIN [angie@joongang.co.kr]

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