India expected to cut gold import duty to sideline smugglers – sources
NEW DELHI/MUMBAI, Jan 23 (Reuters) – India is expected to cut import duty on gold to crack down on smugglers who have been offering deep discounts as illicit imports surge following COVID-19 , reducing the market share of banks and refiners, government and industry officials told Reuters.
A cut in import duty from the world’s second largest consumer could lift retail sales by making gold cheaper ahead of the peak demand season and supporting global prices.
It could also revive the operations of domestic gold refineries, which have seen their business wither over the past two months as they cannot compete with gray market operators.
“The government is aware of the problems created by the higher duty structure and these will be fixed soon,” said one government official, who declined to be identified, in response to a question about the possibility of a reduction in -import duty.
Gray market operators, who bring in gold from abroad and sell it for cash to avoid duties, got a boost in July when the government raised the basic duty on gold imports to 12.5% from 7.5% to lower the trade deficit and support the rupee. .
The effective duty is now 18.45%, which includes the import duty of 12.5%, 2.5% of agricultural infrastructure development and other taxes.
Another official said the government was considering cutting the effective rate below 12%, adding: “We will take a final call soon.”
The finance ministry declined to comment while the commerce ministry did not immediately respond to a request for comment.
An official in the Ministry of Commerce said that he was in favor of reducing the import duty on gold and had asked the finance ministry to do so.
“Smuggling is increasing,” said the trade ministry official, adding that the duty could be reduced in the next budget.
The July increase in gold duty was a welcome boost for smugglers, who have largely been sidelined in 2020 and 2021 due to travel restrictions imposed to contain COVID-19 .
Gray market operators are now offering a discount of more than $40 per ounce on official domestic prices, which no bank or refiner can match, said James Jose, managing director of refiner CGR Metalloys.
“A substantial reduction in duty is the only solution to stop smuggling,” said Jose.
Customs and other agencies have seized 3,083.6 kg of illegally brought gold last year to November, the highest in three years.
Indian gold prices jumped to a record 56,850 rupees per 10 grams last week.
The increase in smuggling contributed to a drop in legal imports in December by 79% from a year earlier to the lowest level in at least two decades for the month, the trade ministry estimated. (Reporting by Rajendra Jadhav and Aftab Ahmed; Additional reporting by Shivangi Acharya; Editing by Louise Heavens, Robert Birsel)