India imposes gold sales tax on top of record import duty (updated)

Gitanjali Gems

29/02/2016 12:16

(Adds quotes, details) 
    By Rajendra Jadhav 
    MUMBAI, Feb 29 (Reuters) - India has reintroduced a local 
sales tax on gold jewellery after a gap of four years, on top of 
record import duty, in a move officials hope will dampen demand 
for the precious metal in the world's second biggest consumer. 
    Successive governments in Asia's third largest economy have 
struggled to curb Indian appetite for gold despite the 
imposition of a 10 percent import duty in 2013 and other 
restrictions introduced from time to time. 
    Annual imports of up to 1,000 tonnes of gold, accounting for 
about a quarter of India's trade deficit, have also prompted the 
government to launch a scheme to mobilise a pool of more than 
20,000 tonnes of the metal lying idle in homes and temples. 
    Finance Minister Arun Jaitley, presenting his third budget 
on Monday, announced an excise duty of 1 percent on gold and 
diamond jewellery. A report from his ministry on Friday said 
gold was under-taxed in the country, where the richest 20 
percent account for roughly 80 percent of gold purchases. 
    Jewellers said the new duty will cut demand, which could 
eventually put a brake on the safe haven rally in global bullion 
prices  XAU= . 
    "The excise duty will bring jewellers' business to a 
standstill," said Ketan Shroff, a spokesman for India Bullion 
and Jewellers Association, saying many of the nearly 10 million 
artisans working in the industry could lose their jobs. 
    The government imposed an excise duty in 2012 too, but was 
forced to roll it back after jewellers went on a strike. 
    This time trade bodies are planning to meet finance ministry 
officials to request scrapping the duty, said Praveenshankar 
Pandya, head of the Gem & Jewellery Export Promotion Council. 
    More curbs typically lead to more illegal trade. Unofficial 
gold transactions have been rising since India made it mandatory 
for customers to disclose their tax code for high-value 
purchases.  urn:newsml:reuters.com:*:nL3N15F0AY 
    "For every tax, jewellers have to deal with different 
government agencies," said Aditya Pethe, a director at Waman 
Hari Pethe Jewellers. "For a jeweller it is difficult to comply 
with excise duty rules." 
     
    IMPORT DUTY 
    Jewellery sales in India fell in the last two months due to 
a price rally and as consumers delayed purchases hoping for a 
cut in import duty. This forced importers to offer a discount of 
up to $53 per ounce over global prices to clear their inventory. 
    But Jaitley surprised the market by maintaining the duty and 
instead raising the concessional countervailing duty on imports 
of gold dore bars, an alloy, to 8.75 percent from 8 percent. 
    Local gold prices  MAUc1  jumped 1.4 percent after the move, 
while shares of major jewellers such as Gitanjali Gems  GTGM.NS  
and Titan Company  TITN.NS  fell. 
    "The discounts will come down gradually in the next few days 
since now there is clarity regarding the duty structure," Waman 
Hari's Pethe said. 
   ($1 = 68.4650 Indian rupees) 
 
 (Editing by Krishna N. Das and David Clarke) 
 ((rajendra.jadhav@thomsonreuters.com; +91-22-6180-7153 ; 
Reuters Messaging: 
rajendra.jadhav.thomsonreuters.com@reuters.net)) 
 
Keywords: INDIA BUDGET/GOLD