India cuts import tax on gold, industry expects drop in smuggling (updated)

Tribhovandas Bhimji Zaveri

01/02/2021 11:38

* Slashes gold, silver import duty to 7.5% from 12.5%
    * Duty cut makes smuggling of gold less attractive
    * India imposes 2.5% cess on gold, silver imports    

 (Adds details, industry comments)
    By Rajendra Jadhav
    MUMBAI, Feb 1 (Reuters) - India slashed import duties on
gold and silver on Monday in a surprise move that industry
officials say could boost retail demand and curtail smuggling in
the world's second-biggest bullion consumer.
    Higher demand for gold from India could support global
prices  XAU= , which hit a record high last year, although that
could increase India's trade deficit and weigh on the ailing
rupee  INR=D4 .
    India cut import duties on gold and silver to 7.5% from
12.5%, but imposed a 2.5% cess - a separate tax - on the
imports, Finance Minister Nirmala Sitharaman said.
    After the changes, gold imports would effectively attract
10.75% tax against 12.5% earlier, said Somasundaram PR, the
managing director of the World Gold Council's (WGC) Indian
operations.
    "Hopefully, this is the first of a series of such cuts to
make bullion an asset class that operates mainstream," said
Somasundaram.
    India raised import duty on gold in 2019 to 12.5%, which
industry officials said boosted smuggling of bullion into the
country and hit banks and bullion dealers that were paying the
duty.
    "Higher import duty was not only indirectly promoting
illegal gold transactions but also eroding government's
revenue," said Ahammed MP, Chairman, Malabar Gold & Diamonds.
    Up to 120 tonnes of gold was smuggled into India in 2019,
according to the WGC.
    Gold prices have come down with the duty cut and this will
boost retail demand, said Prithviraj Kothari, managing director
of RiddiSiddhi Bullions.  
    Gold futures fell nearly 4% after the announcement to 47,200
rupees per 10 grams, the lowest in over 7-months.
    India also cut import duty on gold dore, or non-refined
mined gold, to 6.9% from 11.85% and to 6.1% from 11% on silver
dore, Sitharaman said.
    Shares of jewellery makers such as Titan  TITN.NS , P C
Jeweller  PCJE.NS  and Tribhovandas Bhimji Zaveri Ltd 
closed up as much as 8.8%.

 (Reporting by Rajendra Jadhav; Editing by Kim Coghill and Mark
Potter)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-68414378 ; Reuters
Messaging: rajendra.jadhav.thomsonreuters.com@reuters.net))