The government may reduce import duty on gold in the Union Budget to curb the exponential rise in smuggling that has not only impacted the government's tax revenues but also the export of gems and jewellery from the country.
Though the import duty was cut to 7.5 per cent in the last year's Budget from as high as 12.5 per cent, the effective import duty on the yellow metal remains at 10.75 per cent after the imposition of various cesses, surcharges and a 3 per cent goods and services tax (GST). It is expected that the government may cut it to 4 per cent-5 per cent from 7.5 per cent.
Higher taxes on gold have hardly yielded the desired revenue to the government, said an official, adding there may be some action on this front in the Union Budget.
Customs duty on gold was 2 per cent in 2004, which was raised to 10 per cent in 2013 by the Congress-led UPA government and subsequently, increased to 12.5 per cent in 2019 by the Modi government.
India imports about 1,000 tonnes of gold each year, but that which comes through the unofficial channel and lands in the grey market is huge. According to industry estimates, up to three-fourths of India's gold demand is met through the grey market.
An official report recently said that restrictions on the movement of people across borders caused smuggling syndicates to graduate to ingenious concealment methods of gold. Official agencies seized gold from ingeniously created cavities in vehicles and from fuel tanks of trucks. The gold had to be carefully extracted from the tanks after cutting them open.
Higher taxes have not only led to smuggling but it has also dented exports of gold jewellery. India's jewellery exports have come down drastically in 2021 to a little above $25 billion, from the usual $35 billion.
India is the fifth largest exporter of gems and jewellery, contributing 5.8 per cent of the world's gems and jewellery exports.
Industry bodies have unanimously asked the government for a cut in gold import duty. The Gems and Jewellery Export Promotion Council said the country could easily become the biggest exporter but the government needs to undertake some policy reforms. A Customs duty cut is one among those.
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