Last Updated : 06 July 2009 at 12:50 IST
India hikes import duty on gold, silver in budget
The Indian government on Monday raised the import duty on gold bars from Rs 100 per 10 gram to Rs 200 per 10 gram, while other forms of gold (excluding jewellery) is increased from Rs 250 per 10 gram to Rs 500 per 10 gram. The customs duty on silver has also been increased from Rs 500 per kg to Rs 1,000 per kg. The duty on gold and silver has not been reviewed since 2004 even though prices have increased manifold.
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NEW DELHI: There is nothing to cheer for the bullion market in the annual budget that India’s Finance Minister Pranab Mukherjee presented in the Parliament on Monday.
Read New Story: India increases import duty on Gold by 2%, silver 6 % in 2012
Two months after the Congress-led United Progressive Alliance government headed by Prime Minister Manmohan Singh came to power, the ruling alliance presented the annual budgetary allocations.
Here are the key points related to commodities and bullion market in the budget that Mukherjee presented:
**The government has re-imposed tax on gold.
**The government has increased customs duty on gold and silver.
**But branded jewellery items have been exempted from excise duty. Tax holidays/exemptions have also been announced for gems, jewellery and textiles.
**The government has decided to abolish the controversial Commodity Transaction Tax (CTT) in line with recommendation of Economic Advisory Council of Prime Minister.
Presenting the Union Budget 2009-10, Mukherjee announced increasing import duty on gold bars from Rs 100 per 10 gram to Rs 200 per 10 gram, while other forms of gold (excluding jewellery) is increased from Rs 250 per 10 gram to Rs 500 per 10 gram.
Gold prices rose by Rs 100 per 10 gram in the Delhi Bullion Market immediately after Mukherjee announced the decision to increase import duty. Mukherjee, however, kept import duty on gold and silver jewellery unchanged.
The customs duty on silver has also been increased from Rs 500 per kg to Rs 1,000 per kg. The duty on gold and silver has not been reviewed since 2004 even though prices have increased manifold, the finance minister said.
He further said the revised rates would also apply to gold and silver, including ornaments that are not studded, when imported by a bonafide passenger as baggage. On the other hand, Mukherjee announced excise duty exemption on branded jewellery.
"I fear that my proposals relating to gold and silver on customs side would somewhat dent my popularity with women. I propose to salvage this by fully exempting branded jewellery from excise duty".
Mumbai-based bullion analyst Rakesh Kumar said that the hike in customs duty on gold and silver will hit the bullion market in India. “India is the largest consumer and importer of gold and silver in the world. I think the increase in customs duty will result in fall in gold and silver imports to India,” Kumar told Commodity Online.
Since January 2009, gold and silver imports by India have been falling thanks to the high prices of these bullion commodities. India has so far managed to import only 57 tonnes of gold in the last six months. Last year, the country had imported nearly 400 tonnes of gold.
Kumar said the decision to give tax holidays to branded jewellery items looks good for the market. “This could result in a fall in gold jewellery prices,” he said.
According to analysts, the Indian government decided to impose some extra import tax on gold as the last time the government did it was in 2005 and at that time the price of gold was Rs 5,000 per 10 gm. Then a Rs-100/10gm import duty was imposed on yellow metal.
Things have changed a lot after that, especially in 2008-09, as far as gold is concerned. Gold prices are around Rs 15,000 per 10 gm now — three times more than the 2005 level. And demand for the commodity has gone up and the prices are expected to stay at that level considering the safe haven status of the yellow metal during the recession period.
So, if there is one major commodity which can be taxed that is gold. And, there is a strong case for a hike in import duty on gold to at least Rs 200/10 gm, which will ensure a revenue of Rs 1,200 crore for the exchequer, thinking that India imports about 600 tonnes of gold this year (There is a fall in imports following the rise in prices).
The gems and jewellery industry in India has been demanding the continuation of the existing credit limits to exporters with good track record, and improving credit facilities.
They had also demanded the introduction of Presumptive Tax/Turnover Tax as a permanent solution for the peculiar nature of the industry characterized by the daily price fluctuation which causes disputes on taxation.
The gems and jewellery industry had also sought rationalization of interest rate at par or below the international interest rates. It has been insisting that India’s apex Reserve Bank should make dollar finance available at LIBOR + 1% to the banks financing the gem & jewellery industry up to 31st December 2011; as against LIBOR + 3.5% and extra charges of handling and commissioning.
India is the world’s largest manufacturing centre for gems and jewelry and the Industry contributes over 12% to the total export earnings of the country and employs 1.5 million workers who are considered to be highly skilled and amongst the best in the world. The recent recession has rendered over 3-4 lakh workers jobless with many hanging up their tools to pursue other avenues.
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