India Looks to Tax Gold Jewellery Imports

February 21, 2013 at 10:25

truthing

Gold jewellery has a special place in Indian culture – it plays a part in weddings, in prayer and – most importantly – in general social exhibition. But does anyone know where their shiny yellow metal actually comes from?

On Wednesday, India’s trade ministry recommended that gold jewellery should be excluded from the country’s free trade agreement with Thailand, amid concerns that neighbouring countries are routing their trade through Thailand to dodge duties.

Imports of gold jewellery into India are generally charged a tax of 10 per cent, after the government doubled the rate from 5 per cent at the start of 2012 to help curb gold imports.

But Thailand is a special case where, under the Early Harvest Scheme – a trade agreement signed between Thailand and India in 2003 – there is a levy of only 1 per cent.

This is intended to apply only to products with at least 20 per cent of their value added in Thailand but the Indian government is concerned that this requirement is not being met.

The Department of Commerce said in a statement on Wednesday:

In view of the increasing import of gold jewellery from Thailand, the Department of Commerce has asked the Department of Revenue to issue notification suspending the import of gold jewellery from Thailand under the provisions of Early Harvest Scheme till the certificates of origin issued by Thailand are verified to our satisfaction.

If implemented, the ministry’s recommendation won’t have a big effect on the market here, according to Kishore Narne, an associate director at Motilal Oswal Commodity Broker.

“The government wants to remove gold from the free trade agreement, so that will take away some of the low-duty gold”, he says. “But jewellery consumers are not at all price-sensitive. Any impact is on the quantity demanded but they spend the same amount of money.”

Trade in gold is a sensitive issue in India. The government is battling with a current account deficit which was valued at 4.2 per cent of GDP last year, against a generally-recommended level of 2.5-3 per cent.

And gold – purchased both as jewellery and as an investment – is a significant contributor to the problem. Gold imports into India grew 39 per cent in the 2011-12 year and the Reserve Bank of India estimates that if the figure had been at 24 per cent, the world average, the current account deficit would have been $6bn lower.

Last month, the authorities raised the duty rate on bullion imports from 4 per cent to 6 per cent to curb flows. But rates on so-called non-standard gold, which includes jewellery, were already at 10 per cent and were left unchanged.

It’s all very important to economists and politicians. But what bride would let this get between her and her trousseau?