- On 2nd February, India’s gold import duty decreased with consumers now paying 14.07% tax for refined gold compared to 16.26% previously
- We believe lower import duty may have slightly greater impact on short-term gold demand. Several rural welfare schemes may also boost rural demand for gold
- Lower import duty may hinder gold smuggling in India and encourage official imports
- Securities and Exchange Board of India (SEBI) has been notified as a regulator for gold spot exchanges. The move may spur infrastructure development, good delivery standards, and may enable India to emerge as a major bullion trading hub.
Announcements in the budget
On 1st February, during the annual budget, India’s Finance Minister Ms. Nirmala Sitharaman, made various announcements relevant for the Indian gold market:1
- In the budget of 2018-19, Government had announced its intent to establish a system of regulated exchanges. This year budget notified SEBI as regulator of the exchanges. Also, Warehousing Development and Regulatory Authority will be strengthened to set up a commodity market eco-system including vaulting, assaying, logistics in addition to warehousing.
- The custom duty on gold bars and gold doré’ was rationalised keeping in view of rise in gold price since the increase in custom duty on gold bar to 12.5% from 10%.2 The various components in custom duty and rates are as follows:
a) The basic customs duty (BCD) on gold bar and gold dore’ was reduced to 7.5% and 6.9% from previous level of 12.5% and 11.85% respectively.
b) To improve agriculture infrastructure, an additional Agriculture and Infrastructure Cess (AIDC) is imposed on few items including gold at rate of 2.5%.3
c) Also, the Social Welfare Surcharge (SWS) is imposed on BCD at 10% but exempted on AIDC.
With an additional 3% IGST, consumers will now be paying 14.07% tax for refined gold compared to 16.26% previously- a reduction of 2.19% in tax post budget (Table 1).