China busts silver smugglers seeking VAT rebates

BEIJING, Nov 8 (Reuters) Chinese customs officials have arrested two bands of silver smugglers and said other gangs were operating, shuttling silver across the border with Hong Kong in order to cheat tax authorities.

Two separate gangs of smugglers concealed 4.48 tonnes of silver bullion worth 220.9 million dollars in secret compartments of container trucks, which travelled daily across the border between Shenzhen and Hong Kong, the Shenzhen customs anti-smuggling bureau said.

Exporters sold the silver to customers in Hong Kong, to earn a 13 per cent rebate on value-added taxes that was in effect until July 1, it said in a report on the customs web site, www.customs.gov.cn.

The smugglers then brought the silver back into China so that it could be exported again.

''Silver smuggling will still be active,'' the Shenzhen bureau said, even though these two smuggling rings, in Guangzhou and Shenzhen, were busted in June.

Since July 1, exporters of silver have enjoyed a 5 per cent VAT rebate.

China's exports of silver to Hong Kong dropped precipitously to 155 tonnes in July, compared with 578 tonnes in June, once the rebate incentive was cut, customs data show.

Monthly exports of silver to all countries averaged 167 tonnes in the third quarter, after the rebate was reduced, compared with a monthly average of 502 tonnes in the first half of this year.

Higher international prices of silver, compared with domestic prices, were likely to encourage exports of silver, the bureau said.

Silver hit 16.19 dollars an ounce this week, the highest since January 1981.

REUTERS MS RN1550