India has raised basic import duty on gold to 12.5 percent from 7.5 percent, according to a government notice dated June 30.
This step has been taken to reduce influx of gold into the world’s second-largest consumer of the precious metal, after India’s ballooning trade deficit pushed the Rupee to a record low. This is a reversal of last year’s Union Budget proposals, where Finance Minister Nirmala Sitharaman had announced cut in customs duty on gold to 7.5% from 12.5%. That time total levy on gold was at 10.75%, including cess, social welfare surcharge, and GST.
Now with a 5 per cent increase in import duty, the total levy on gold would stand at 15.75 per cent. India fufills most of its gold demand through imports, which were putting pressure on the rupee, which hit a record low earlier this week. Analysts say that this move will make gold more expensive at domestic levels and consumers will have to pay higher prices.
Reacting to this measure, Mr. Somasundaram PR, Regional CEO, India at World Gold Council said, “India’s gold demand is largely met through imports, which, at times when INR faces some weakness, exacerbates the issue. INR exchange rate touched a record low earlier this week amid higher inflation and expanding trade imbalances. The increase in import duty on gold from 7.5% to 12.5% aims to reduce gold imports and ease macro-economic pressure on INR. However, overall taxes on gold now rise sharply from 14% to around 18.45% and unless this is tactical and temporary, this will likely strengthen the grey market, with long term adverse consequences for the gold market.”
