In a three-pronged bid to check the burgeoning current account deficit, halt depreciation of the rupee and partly make up the shortfall in revenue collections, the Central Government on Tuesday tweaked the duty structure on precious metals to mop up an additional Rs.600 crore during the last quarter of the current fiscal.
Through a CBEC (Central Board of Excise & Customs) notification, the fixed amounts of excise and customs duties on gold, silver and platinum stand changed to ad-valorem rates with immediate effect. Accordingly, while diamonds now attract an import duty of 2 per cent, customs and excise levies on gold and silver henceforth will not be as a specific amount but on their value. In effect, the incidence of duty will go up with the rise in prices of the precious metals and thus render them dearer.
As per the notification, the import duty on gold has been revised to 2 per cent of the value from the earlier fixed rate of Rs.300 per 10 grams. Likewise, the import duty on silver now stands pegged at 6 per cent, instead of the earlier fixed rate of Rs.1,500 a kg.
Alongside, the excise duty on gold has also been changed to 1.5 per cent of the value, as against the earlier fixed rate of Rs.200 per 10 grams. Silver will attract an excise levy of 4 per cent instead of the earlier fixed duty rate of Rs.1,000 a kg.
Giving a rationale for the change in duty rates, CBEC Chairman S. K. Goel said: “The old rates were fixed 4-5 years ago. In the last few years, prices have increased substantially so the change has been made to bring duties in line with market prices.” The Finance Ministry estimates that the increase in duties on precious metals will “fetch an additional Rs.500-600 crore for the balance fiscal year.”
But will the hike in duties make gold lose its glitter? As an immediate effect, gold prices firmed up by Rs.35 to Rs.27,925 per 10 grams in the bullion market here on Tuesday and silver gained Rs.575 to Rs.52,725 a kg.
The Finance Ministry is of the view that apart from raking in more revenue, the step will help in checking the burgeoning current account deficit. Last fiscal, import duty on gold mopped up Rs.2,500 crore, while the levy on silver raked in Rs.300 crore. During April-December this fiscal, gold and silver imports soared up by 53.8 per cent to $45.50 billion.
In 2010, the country's gold imports stood at 958 tonnes while in the first half of 2011, imports totalled 553 tonnes, even in the wake of hardening prices globally. During 2011, gold crossed the Rs.29,000 per 10 gram level to a historic high of Rs.29,155 per 10 grams in December in view of the marriage season. The fact remains that apart from the marriage requirements, the demand for gold and silver were more owing to investment purposes as a hedge against high inflation and weak equity markets.
That this is true comes out from the fact that silver also hit an all-time high of Rs.75,020 a kg on April 25, 2011, on speculative and investment-driven purchases in line with global markets.
However, according to Gems and Jewellery Export Promotion Council (GJEPC) Vice Chairman Sanjay A Kothari, the duty restructuring will not have much of a material impact on exporters even as prices will be a deterrent for actual retail customers.