As gold imports from Indonesia, an unlikely source, spiked since late July, a concerned government has asked the customs department to harden a crackdown on unscrupulous elements seeking to abuse India’s free trade agreement (FTA) with that country for duty evasion, a top government official told FE. There are apprehensions that these elements may be illegally tweaking the place of origin of the precious metal and, consequently, gold from other countries may be landing up in India as imported from Indonesia. From almost nil earlier this fiscal, gold imports from Indonesia exceeded 600 kg since July, more so after India restricted the precious metal purchases from South Korea in late August to curb similar violations or rules.
“It’s not possible to amend the terms and conditions of FTAs we have already signed with Asean members. But there is a fear that some unscrupulous elements are abusing the rules of origin of the imported products for duty evasion. The customs department has been asked to step up the scrutiny of consignments to establish the actual place of origin and check such abuses,” said the official. However, the government is unlikely to ban imports of gold from Indonesia — one of the 10 members of the Asean with which India has an FTA — as it did in the case of South Korea, another free trade partner, last month unless the situation spirals out of control. India currently imposes a 10% basic customs duty on gold imports.
Gold imports from South Korea jumped to around 27 tonnes worth around $1.2 billion from negligible amount before. Senior government officials say much of the gold was actually from places like Dubai, which was imported to India after minor finishing touches in South Korea to exploit the duty advantage. The reason for the unusual spurt in imports from nations other than traditional suppliers is the introduction of the goods and services tax regime since July 1, and the consequent abolition of the countervailing duty (CVD).
Prior to the launch of the GST in July, a 12.5% CVD–which was in lieu of domestic taxes—was imposed on gold imports, even from India’s free trade partners. With the abolition of the CVD following the GST launch, gold imports from India’s FTA partners are taxed at 3% (only GST), while those from others attract both the customs duty (10%) and the GST (3%). Such duty disparity has driven up imports first from South Korea and now from Indonesia. However, while South Korea is not a gold producer, Indonesia is, although it hasn’t been a key supplier to India traditionally. This may make things complicated for customs officials to ascertain the origin of gold. Some estimates suggest Indonesia produced around 100 tonnes of gold in 2016, though much less than India’s usual annual imports of around 800 tonnes in recent years.