Government should cut taxes on gold substantially from the existing 13 per cent level to curb smuggling and promote transparency in local gold trade, the World Gold Council (WGC) said ahead of the Union budget 2017.
At present, gold attracts Customs duty of 10 per cent, excise duty of 1 per cent and 1.5 per cent value added tax (VAT), taking total taxes on the yellow metal to 13 per cent. “Total taxes on gold is about 13 per cent at present. This has to come down, between GST and Customs duty, to a reasonable level so that there is no incentive to grey market,” Somasundaram P R, head of the WGC’s India operations, told PTI.
It is a must to bring down the taxes on gold if the government wants to promote transparency in the sector following demonetisation, he said. “What is the primary purpose following demonetisation is to expand transparency in all aspects… if the priority of the government is transparency, then taxes on gold have to be brought down substantially,” he noted.
With a high Customs duty, gold is being imported through the unofficial channel. India is the world’s largest consumer of gold — which is met entirely through imports — but the demand is likely to decline to 650-750 tonnes in 2016 on imposition of excise duty and the subsequent jewellers’ strike.
“There are indications that tax on gold would be kept at 3-6 per cent in the GST regime. If Customs duty remains at 10 per cent, the overall taxes would be 13-16 per cent, which is very high,” he said.
Somasundaram said the overall tax on gold should come down either by reducing the Customs duty or tweaking the GST rate. With little expectation for change in the GST rate, the only option is to cut Customs duty.
“In the Budget, there is always an expectation that the government will talk about the Customs duty on gold in preparation for GST. Would there be clarification on what Customs duty would be?” he asked.
The WGC-India head said it would be stronger message if the government announces some measures in the forthcoming budget to bring in transparency in the gold and jewellery industry.