The Hindu Business Line : Duty hike on imported gold will yield Rs 800 cr

Mumbai, Feb 8 With the Union Budget barely days away and Government facing a stringent financial condition to support projects of critical importance, here is an opportunity to raise a substantial amount of revenue – as much as Rs 800 crore – through a simple stratagem.

Basic customs duty on gold, which is currently Rs 100 per 10 grams, should be raised to Rs 200 per 10 grams. As a result of this nominal duty hike, on annual import of approximately 800 tonnes, the Government will earn additional revenue of Rs 800 crore, and total revenue of Rs 1,600 crore.

Three years ago, the Government rationalised customs duty on gold import by levying Rs 100 per 10 grams on serially numbered bars. Gold in other forms attracted basic duty of Rs 250 per 10 grams. Education cess at the rate of 3 per cent of the aggregate duties of customs is also levied. Almost the entire quantity (over 95 per cent) of imports is currently in serially numbered bars.

Interestingly, in the local market three years ago, gold was ruling at about Rs 5,000 per 10 grams; and it is currently well over Rs 11,000 per 10 grams reflecting a sharp rise in international prices.

There is a strong case for raising the basic customs duty on gold imports to Rs 200 per 10 grams in order to raise much-needed revenue to fund developmental activities. A mere Rs 100 increase is most unlikely to hurt anyone, much less consumers who are willing to shell out over Rs 11,000 for 10 grams. Anyone who can afford to spend over Rs 11,000 can as well afford to pay a paltry Rs 100 extra.

The craze for gold in the country has reached unprecedented proportions. Despite being home to a very large number of the worlds poor, India’s appetite for the yellow metal seems to be unsatiated. The import statistics are truly mind-boggling. From $10.53 billion (about Rs 47,000 crore) in 2004-05, the value of gold imports in 2005-06 expanded to $10.83 billion (over Rs 50,000 crore). Last fiscal, it further jumped to $ 14.45 billion (over Rs 60,000 crore). In other words, in last three years, the country imported gold cumulatively worth over Rs 1.5 lakh crore.

Who says India is a poor country! Gold, it is well known, is an unproductive asset. But for our country, it has mythological, historical, social and economic significance. World over, it is known as a safe haven investment and a hedge against inflation. Yet, it has little practical utility.

India’s gold imports have been rather large despite a sharp increase in world prices primarily because the market for the metal is highly speculative. A rising world market has fanned speculative tendencies in the marketplace. A large part of the annual import is not for self-consumption but to make windfall gains from price volatility.

Rather than consumers, speculators have benefited from the price rallies in gold in last three years. Ironically, these days, speculators have a new name – they are euphemistically called investors.

While gold is an integral part of purchases during important occasions such as marriage, childbirth and festivals, consumers are increasingly wary of wide price fluctuations in the market. Strong education is needed to wean consumers away from the unproductive but wastefully consuming passion for the yellow metal.

Readymade jewellery attracts basic customs duty of 10 per cent ad valorem. In addition, a 2 per cent countervailing duty (in lieu of excise duty) is levied on branded jewellery. Education cess of 3 per cent of the aggregate duties and 1 per cent additional duty of customs is also levied on jewellery.

There are reports in the market that gold jewellery imported from Thailand attracts considerably lower duty of just 1 per cent.

More Stories on : Gold & Silver | Budget | Taxation

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page