Import duty on gold dores hiked to 5%

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SummaryThe government on Tuesday raised the import duty on gold dore bars to 5% from 2%, following up on the hike in the customs duty on refined gold to 6% the previous day to contain a runaway current account deficit.

The government on Tuesday raised the import duty on gold dore bars to 5% from 2%, following up on the hike in the customs duty on refined gold to 6% the previous day to contain a runaway current account deficit (CAD).

However, industry executives say buyers may, at best, defer gold purchases for some time, but the decisions would not deter them in the medium term as the fundamental aspect of gold as a profitable investment tool and a hedge against inflation still stands.

India, the world's biggest gold consumer, imports more than 800 tonne a year and dore — an alloy of gold and silver used by refineries to produce pure gold — accounts for slightly more than 10% of annual purchases from abroad.

Tuesday's move was a natural option for the government to bridge the gap on import duties on bullion bars and dore, which had become an attractive import since April 2012 when the government doubled the tax on refined gold purchases from abroad to 4%.

Most of the around 100 tonne dore imports are done by refiners such as MMTC, Rajesh Exports and PAMP.

“The hike in duty (on gold dore) won't affect companies like us, as ultimately the extra cost will be passed on to consumers. Overall, these decisions won't help much other than opening up avenues for gold smuggling. It's because consumers tend to believe that gold prices will rise further in future and this is just like another hike in prices," Siddharth Mehta, chief strategy officer at Rajesh Exports, told FE.

Monday's hike marked an effective six-fold rise in the refined gold import duty in around a year. The import duty on gold was fixed at R300 per ten grams before January 17, 2012, when it was effectively doubled to 2% and, then, to 4% during the Budget announcement for the 2012-13 fiscal.

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