India imposes gold sales tax on top of record import duty

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% import duty in 2013 and other restrictions introduced from time to time. Annual imports of up to 1,000 tons 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 tons 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% on gold and diamond jewellery. A report from his ministry on Friday said gold was under-taxed in the country, where the richest 20% account for roughly 80% 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. “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.