Centre mulls cut in gold import duty

Gold prices likely to come down significantly if govt goes ahead with the move

​Hyderabad: Good days ahead for those looking to buy gold with the central government seriously mulling over lowering import duty on the yellow metal to check smuggling. A cut in import duty will reduce gold prices in the country by up to 8 per cent.

Falling trade deficit driven by low oil prices has given the elbow room to the Centre to go for reduction in import duty on bullion, according to a Union commerce ministry official.

Meanwhile, gold traders in the city welcomed the proposal and said that it would not only turn gold cheaper, but also check the ever-growing smuggling, "Now the current account deficit (CAD) is improving and this decision (to reduce import duty) should be taken into the budget," Manoj Dwivedi, Joint Secretary, commerce ministry said on the sidelines of a conference in New Delhi on Thursday.

The commerce ministry has "been saying the ideal rate for the industry would be 2 per cent. It can be brought down in a phased manner or in one go," Dwivedi said.

India raised import duties on gold to 10 per cent in a series of hikes in 2013, looking to curb demand to narrow a widening trade deficit. However, trade deficit fell to a low of $12.96 billion in June this year as gold imports nearly halved from a month earlier. However, gold smuggling has been rife since India raised the import duty on the metal. The World Gold Council estimates that up to 120 tonnes of gold was smuggled into India in 2016 alone.

The ever-increasing smuggling of yellow metal and falling trade have obviously prompted the commerce ministry to propose cut in gold import duty to 2 per cent from the current 10 per cent at one go or in phases. If the central government accepts the proposal, gold prices will come down by almost 8 per cent, according to bullion traders in the city.

“Over the years, we have been demanding for lowering customs duty on gold. If it happens, it’ll really boost jewellery sales. Moreover, we’ll be able to do exports as well,” observed Satish Agarwal, Vice-President, Twincities Jewellers’ Association.

According to him, NRIs are not buying gold in India these days because of high taxes. “They do gold shopping overseas before arriving in India. Majority of deep-pocketed buyers in Telangana and AP also prefer to go to Dubai or Singapore for purchasing gold jewellery. This will change if the prices come down here,” Agarwal told The Hans India.

The immediate benefit will be reduction in unofficial imports of gold, says Boorugu Mahabaleshwara Rao, President, AP Bullion Merchants’ Association, which on several occasions urged the Centre to reduce import duty to curtain gold smuggling.

“Definitely, smuggling activity will come down if the Centre reduces customs duty on gold to 2 per cent from the current 10 per cent. Because of higher tax regime, jewellery is expensive in local markets, when compared to global hubs like Dubai. That’s why unofficial gold imports are on the rise.

If import duty is reduced to two per cent, then total tax will be 5 per cent in addition to GST on making charges. The smuggling costs are estimated to be four per cent. Lower import duty will easily check the smuggling activity and bring buyers back to local markets,” Rao explained.

Gold smuggling has been alarmingly increasing ever since, demonetisation was announced on November 8, 2016. It was further rampant pre-GST regime.

The higher taxes in India make local jewellery market unattractive for NRIs, upper middle-class and elite sections. Post-GST tax is at 14 per cent on gold jewellery, when included 10 per cent customs duty, 3 per cent GST on gold, other processing fee and 5 per cent GST on making charges.