The sharp increase in gold import duty will once again incentivise gold smuggling and push the trade to deal with the grey market. Though gold prices are falling globally, it has been holding steady in India due to rupee depreciation against dollar.

The price difference between legal and smuggled commodity will play a major boost for jewellers to source gold illegaly.

Somasundaram PR, Regional CEO (India), World Gold Council, said the increase in import duty on gold to 12.5 per cent aims to reduce gold imports and ease macro-economic pressure on rupee.

4.45 percentage higher

However, he said overall taxes on gold will now rise from 14 per cent to about 18.45 per cent and unless this is tactical and temporary, this will strengthen the grey market with long term adverse consequences for the gold market.

Ahammed MP, Chairman, Malabar Gold & Diamonds, said the government’s decision to increase the import duty on gold to 15 per cent, including the agriculture infrastructure development cess of 2.5 per cent, will have a major impact on the jewellery trade. The increase in import duty is likely to give a rise to gold smuggling to a large extent for evading tax.

As a result, the government stands to lose a huge amount of revenue from tax collection. In fact, the import duty on gold has been reduced in recent times to curb tax evasion and smuggling, but the latest hike in import duty will fuel smuggling again, he said, urging the government to review the import duty increase on gold.