New Delhi: The central government is considering a sharp reduction in the import duty on gold, to four per cent from the current 10 per cent. This is part of the discussion on the ‘integrated gold policy’ under preparation. The matter is being reviewed by the Central Board of Indirect Taxes and Customs. On Thursday, an internal meeting was called by P K Das, the board chairman, to discuss the slashing of basic duty on precious metals.
In February, the finance minister had said a comprehensive policy would be formulated to develop gold as an asset class. The duty reduction is being examined with a view to plug ‘unofficial channels’ of import, that disincentivise organised entities in the market. India’s gold import fell 3 per cent in value to $32.8 billion (~2.3 trillion) during 2018-19.
“The demand is of a reduction in the basic customs duty on both gold and silver. This is part of the bigger comprehensive policy being worked out,” said an official.
The government is also examining a revision in the Goods and Services Tax (GST) rate for precious metals, currently 3 per cent. “At the end of the day, our revenue should not be hurt. We are examining rationalisation of the GST rate and basic customs duty on gold,” added another official.
The government’s official think tank, NITI Aayog, had in a report last year made a case for cutting the tariff on gold and the GST rate. A committee headed by Ratan P Watal, a principal advisor at the Aayog, said it was important to keep the basic customs duty on gold as low as possible, to create a tax-compliant system in the sector. “A reduction in the customs duty in the past has been argued to support tax compliance, coupled with a significant reduction in the quantum of gold smuggled into India,” the report said.
The panel had also suggested an exemption of 3 per cent Integrated GST to be paid by exporters in line with customs duty, with a provision of bank guarantee. The customs duty was raised from 2 to 10 per cent between 2012 and 2013, in four rounds. This was to contain a widening current account deficit. One result was a rise in gold coming from South Korea and Malaysia, with which India has free trade agreements.
On this, the Aayog had said: “Cheaper import in the grey market encourages the unofficial gold business in a big way. The resultant gap in the price of official gold imported through the banking channel and unofficial import is hurting the entire group of manufacturers/retailers/bullion importing agencies/refiners and many others involved in tax-compliant business systems.”
The gems and jewellery sector has also argued for a reduction of the fold import duty to four per cent, and on cut and polished diamonds and gem stones to 2.5 per cent, to check the grey market.