The estimate is part of the report prepared by global consultancy PwC. Currently, the import duty on refined gold is 10.30% while that on unrefined or dore gold is 8.24%.
Going by the report, the current 2.06% duty differential representing $ 25.75/oz is significantly higher than the refining cost.
"The five-year average potential impact of the current policy could result in up to $3 billion in tax revenues being lost to the government of India," the report said.
This long-term modelling is based on assumption that average gold spot price is $1,400 per ounce (oz). "The current duty differential between the import duty rate on refined gold and unrefined gold dore results in a duty revenue loss for the government of India," it said.
Under the current tax regime, the government is losing approximately (R560 crore) in duty revenue for every 100 tonnes of dore gold refined in the country.
PwC was engaged by Australian investor relations firm Cannings Purple to analyse whether there is any evidence, based on publicly available information, to support the economic effectiveness of the import duty differential between refined and unrefined gold dore.
Last fiscal, India imported about 825 tonnes of gold. "If all of this had been imported in the form of unrefined gold dore it would represent foregone duty revenue of approximately $770.4 million (R463 crore)," the report said.
The demand for gold fell sharply last fiscal after the government increased duty rates and taxes to stimulate India's local gold refineries, contain a record current-account deficit and stymie slide of the domestic currency.
Last financial year, the government hiked import duties on refined gold four times. "This followed a move in 2012 to create a 2% differential between the import duty rate for refined gold and unrefined gold dore in order to promote the gold dore refining industry within India," the report noted.
Noting that tariffs and duties have been a protective feature of taxation regimes for a significant period of time, the report said they are economically distortive.
"It is generally accepted that economic inefficiencies will arise when different tariffs are imposed on different types of goods. A tariff differential can create a 'dead weight loss' because the cost to administer the different rates is an economic impediment," it added.
Centre may cut import duty on gold by 2%: BofA ML
The Centre is expected to cut two per cent import duty in gold in the forthcoming Budget, as local jewellers run out of inventory, a leading US brokerage said here.
"We expect a two per cent cut in gold import duty. In our view, the government will, sooner than later, have to withdraw gold import restrictions as local jewellers run out of inventory. The impending drought may also moderate gold import demand," Bank of America Merrill Lynch said in its report here. We expect the current account deficit to widen to 2.6% of GDP in FY15 from 1.7% in FY14 especially as latent demand could lead to a spike in gold import demand, it said.
The March quarter current account deficit came in at $1.3 billion.