Customs duty was raised earlier this year to support the rupee
New Delhi is considering reversing its recently hiked import tax on gold to stop illegal inflows of the metal, Bloomberg reported on Monday citing sources. According to the report, the trade ministry is considering cutting the current 12.5% levy to 10%. The step could be announced at the budget presentation due early next year, or sooner, the sources said.
India hiked the tariff on gold imports from the previous 7.5% in July. The measure was aimed to reduce inflows of the metal to stabilize the Indian currency. The rupee suffered a record drop at the time on high inflation and trade imbalances. Following the hike, India's gold imports dropped 23% in July-September year-on-year, according to data from the World Gold Council.
However, warnings of increased smuggling started to come almost immediately after the levy was introduced, with many urging the government to review the decision. Experts say that a higher import tax poses a challenge for India's domestic gold industry as it raises the volume of goods coming into the country unofficially.
"The duty should be anywhere between 4%-6%, where the government will also get a good enough revenue and illicit trade will also not be there." Ashish Pethe, chairman of the Mumbai-based trade group, told the news outlet.
India is the world's second-largest gold consumer after China, with imports largely driven by the jewelry industry. India imported 651.24 tons of gold in the 2020-21 financial year, according to the Ministry of Commerce and Industry. These imports were worth $34.62 billion and have already risen 33% to $46.14 billion during 2021-22. Meanwhile, the country's Directorate of Revenue Intelligence (DRI) said on Monday it seized over 833 kilograms of smuggled gold worth ?405.35 crore ($49.5 million) so far this fiscal year.
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