2% duty hike in gold;will open gate for smuggling, say experts

mport duty on gold and platinum was on Monday hiked from 4% to 6%, pushing up the price of the yellow metal by Rs315 to Rs31,250 per 10 grams.

The decision aimed at trimming rising Current Account Deficit (CAD), may lead to gold prices rising by about Rs600 per 10 grams in the short term, experts said.

Gold traders and retailers in Ahmedabad believe that the hike will lead to a total tax of at least Rs1,800 per 10 gram. It is any day more economical to buy gold jewellery abroad, which will help save Rs1,800 per 10 gram, believe experts. Thus, duty hike on bullion may force people to choose the smuggling route and illegally bring yellow metal in the country.

A decade back, when duty was 1%, country’s gold import was around 800 tonne. In 2011, import duty on gold was 2% and country imported around 1,000 tonne. In 2012, government raised duty to 4% and still country imported another 800 tonne of gold. “The duty hike on gold will not have any major impact on demand. The volume may come down but value of import will increase,” said president of Gem & Jewellery Trade Council of India, Shanti Patel.

But Patel believes that it will be much economical to buy gold jewellery from Singapore, Dubai or any other country. “Government may be doing this to control the widening of current account deficit, but customers know their way to save money,” he said.

Echoing similar sentiment, secretary of Ahmedabad Jewellers Association, Haru Zaveri said that hike in gold duty will not affect the demand as local taxes are not levied. “People have already started investing in gold exchange traded fund (paper gold or e-gold), which are not levied. Investment in e-gold will rise and country will continue to import more gold,” he said.

Last year, gold prices surged 20% despite government raising duty on gold from 2% to 4%. “At present, demand for gold is already down as the prices are at higher levels. The hike fuels the fire. However, there may not be any major impact on customers’ craze for gold, but sentiments may bring the import or consumption marginally down,” said bullion trader and analyst, Girish Choksi.

However, voicing his displeasure at the Union government decision, Tushar Choksi, president of Surat Jewellers Association claimed that rise in import duty will badly effect jewellery business in India. “Hike in import duty will divert our NRI and NRG’ clients to places like Dubai. As there is no import duty on gold, purchasing jewellery is much cheaper compared to India. Rather than helping jewellery sector, Union government has given a harsh blow to it,” Choksi said.

Surat-based jewelers also feel that rise in import duty will decrease buying of gold. As gold will become costly, people will purchase only in limited quantity. “Already, high gold prices have made people buy gold in limited quantity and now it will affect business further. We had high hopes from marriage season, but now it seems that business will not be that good,” Ajay Jain, a Surat-based jeweller, said.