Tags: India | Tax | Gold | Imports

India Raises Tax on Gold Imports for Second Time to Curb Deficit

Friday, 16 March 2012 11:59 AM

India, the world’s biggest bullion buyer, increased the tax on gold imports for the second time this year after record purchases widened the current-account deficit. Gold for immediately delivery fell.

The government will tax gold bars and coins and platinum at 4 percent, Finance Minister Pranab Mukherjee said in his budget speech for the year starting April 1. That’s up from 2 percent set in January. There was no change in the tax on silver.

“One of the primary drivers of the current-account deficit has been the growth of almost 50 percent in imports of gold and other precious metals in the first three quarters of this year,” said Mukherjee. “I have been advised to strengthen the steps already taken to check this trend.”

India doubled the tax on gold and silver on Jan. 17 by imposing a levy on imports as a percentage of the price, compared with the previous system of tax by weight. Global bullion prices rallied for an 11th year in 2011 as purchases by India peaked at 969 metric tons. Futures in India gained 32 percent last year, exceeding the 10 percent advance in global prices, as the currency slumped to a record low.

“The increase in duty will only make gold expensive for the consumers,” said Rajesh Mehta, chairman of Rajesh Exports Ltd., a Bangalore-based gold jewelry-exporter and retailer. “It will encourage smuggling.”

Non-Standard Gold

The import duty on so-called non-standard gold is doubled to 10 percent from 5 percent and the levy on ore, concentrates and so-called dore bars also doubles to 2 percent, Mukherjee said in his speech.

The excise tax on refined gold climbs to 3 percent from 1.5 percent and the government will also levy a 1 percent excise duty on non-branded gold jewelry, the minister said. Jewelry purchases in excess of 200,000 rupees will attract a 1 percent tax from July 1, he said.

“The demand will reduce in the short-term,” said N. Balaji, general manager at MMTC Ltd., the country’s biggest gold importer. “As people in India like to invest in gold as a safe investment for longer-term, people will accept this hike after sometime,” he said by phone from New Delhi.

Imports may drop to $38 billion in the year starting from April 1 from $58 billion this year, Chakravarthy Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, said in a report last month. Consumption fell 7 percent to 933.4 tons in 2011 as the currency plunged, cooling purchases for festivals and marriages, according to the World Gold Council.

‘No-Man’s Land’

“The interest in buying gold jewelry and gold bars will also go down with the consumers having to pay more duties,” Rajiv Jain, chairman of the Gems & Jewellery Export Promotion Council, said in an e-mailed statement.

“Gold’s reaction to recent changes in India’s import duties have been limited,” Edel Tully, an analyst at UBS AG, said in a March 14 note, predicting an increase in taxes. “Given the absence of strong physical demand of late plus the fact that gold is currently trading in no-man’s land without clear upside drivers, its price may be more reactive to stricter import duties than in the past.”

Gold for immediate delivery fell 0.7 percent to $1,647.13 an ounce at 6:51 p.m. in Singapore after rising 0.4 percent earlier. The April-delivery contract gained as much as 3 percent to 28,535 rupees per 10 grams ($568) on the Multi Commodity Exchange of India Ltd. before trading at 27,763 rupees.

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Friday, 16 March 2012 11:59 AM
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