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Jewellers dealing in black market can save 5.5% tax (3% GST and 2.5% cess), much more than the earlier 3% tax, by undertaking cash deals.
Gold will be the underlying asset
The move to reduce gold’s customs duty by 5% and introduce the Agriculture Infrastructure and Development Cess (AIDC) of 2.5% is unlikely to curtail smuggling. Industry officials said the reduction in customs duty will not bring down the price of gold either as there is increasing demand in the Indian market which has kept the premium at $1.7-$2 per troy ounce (around 31.1 grams).
“There are a few solid reasons for the black market to thrive,” says one senior industry official. One, the customs duty and the new cess make will add up to 10%. This is the amount one can save if gold is smuggled in. Though it is less than the previous duty of 12.5%, it is still a substantial amount.
Jewellers dealing in black market can save 5.5% tax (3% GST and 2.5% cess), much more than the earlier 3% tax, by undertaking cash deals. Jewellery exporters while importing gold have to deposit 7.5% of the total amount (equivalent to the customs duty) to the government and claim it after exporting jewellery. Earlier they had to deposit 12.5% since the duty was higher.
Also Read: Budget 2021: Gold prices fall after cut in custom duty to 7.5%
After the government brought all cash transactions of more than Rs 10 lakh in the purchase of gold, silver, diamonds, and other precious stones under the ambit of the Prevention of Money Laundering Act (PMLA), 2002, through a recent notification, jewellers, especially the smaller players, are already looking for more cash deals using gold brought through illegal routes. According to the rule, every cash transaction above Rs 2 lakh was supposed to be backed by Know Your Customer (KYC) documents, but the government agencies were a little lax in implementing it.
Raghu G, general manager-bullion, Manappuram Jewellers Ltd, a part of the Manappuram Group, said the Budget proposals would help to boost exports of gold jewellery.
“It will also enhance revenues to the central government kitty in the form of the cess,” he said, adding that imports through official channels will see a jump as well.
“Gold prices will move up after a temporary downtrend,” he said.
As per the budget proposals, gold dore bars and silver dore bars will attract customs duty of 6.9% and 6.1% respectively, as opposed to the existing rates of 11.85% and 11% respectively. However, all these items will attract the new cess at the rate of 2.5%.
India is the largest importer of gold, and imports around 700-900 tonnes annually. However, in 2020, the imports through official channels had reported a major slump due to the pandemic-induced demand recession and restrictions on flights from Europe. The World Gold Council (WGC), which tracks wholesale gold trade, had forecast gold consumption in India in 2020 to be around 700-800 tonnes, compared to 690 tonnes imported in 2019.
Ahammed MP, chairman, Malabar Gold & Diamonds, said in a statement that the higher import duty was not only indirectly promoting illegal gold transactions but also eroding government’s revenue. “The import duty reduction will make trade compliance. Moreover, the government should also focus on strengthening the e-governance system to beef up the tracking mechanism of illegal transactions of gold,” he said.