Jewellery and industry experts on Friday said the increase in import duty on gold to 15 per cent will fuel smuggling and urged the government to review the tariff rate on the yellow metal.
Effective from June 30, the Union Finance Ministry raised the import duty on gold to 15 per cent from 10.75 per cent to check the current account deficit (CAD) and rising imports.
All India Gem and Jewellery Domestic Council (GJC) Chairman Ashish Pethe said: “The sudden hike in gold import duty has taken us by surprise. We understand the government’s situation as regards the Indian Rupee versus the US Dollar. But this hike will put the entire industry in a spot and may encourage smuggling”.
The GJC will engage with the government to resolve the situation in favour of the domestic industry, he added.
World Gold Council Regional CEO (India) Somasundaram PR said India’s gold demand is largely met through imports, which at times when the Indian rupee faces some weakness, exacerbates the issue.
The rupee exchange rate touched a record low earlier this week amid higher inflation and expanding trade imbalances. The increase in import duty on gold aims to reduce gold imports and ease macro-economic pressure on the rupee, he said.
“However, overall taxes on gold now rise sharply from 14 per cent to around 18.45 per cent and unless this is tactical and temporary, this will likely strengthen the grey market, with long term adverse consequences for the gold market,” Somasundaram said.
Malabar Gold and Diamonds Chairman Ahammed MP said the import duty on gold has been reduced in recent times to curb tax evasion and smuggling. “But the latest hike in import duty will fuel smuggling again. We urge the government to review the import duty increase on gold,” he said.
PNG Jewellers Chairman and Managing Director Saurabh Gadgil said, “At a time when the industry was pushing for a reduction in gold duty, the increase in duty on gold imports by a significant 5 per cent has come as a surprise”.
Gold prices are already at high levels and now with this increase, gold will become dearer. The 5 per cent hike seems to be an effort to offset the high costs of energy currently. While the end consumer may not get affected much by this hike, the trade may be impacted, he added.
India is the world’s second-biggest gold consumer after China. The imports are largely driven by the jewellery industry. Gold imports in volume terms stood at 842.28 tonnes from April 2021-February 2022.