India hikes gold import duty

KATHMANDU, JAN 23 -

The recent hike in import duty on gold in India has increased the possibility of smuggling of the yellow metal to India from Nepal, creating an acute shortage of the metal in the domestic market, bullion traders have said.

India hiked the customs duty on the import of refined gold from 4 percent to 6 percent on Monday, and the tax on raw gold was upped from 2 percent to 5 percent on Tuesday.

As the duty hike in India will make gold comparatively expensive there, local traders are saying that smugglers will be encouraged to illegally export the precious metal to the southern neighbour to get the Indian Currency (IC) which is selling at rates higher than the central bank-fixed rate in the black market.

A series of confiscations of smuggled gold in recent months also suggest

that the country has been a transit for the smuggling of the precious metal into India.

That’s why the bullion traders have demanded an immediate revision of the import duty on gold in Nepal too. “With the chances of gold smuggling into India rising, the government has to review the import duty in line with that of India as an immediate measure to discourage illegal export,” Manik Ratna Shakya, member secretary of the Federation of Nepal Gold and Silver Dealers, Ad Hoc Committee.

The government had last increased the duty in May, 2012, to Rs 2,300 per 10 gm. Finance Ministry officials said they would first see the reaction of the local market before taking any decision. “We will take a decision after analysing the demand and supply situation for about a week,” said Rajan Khanal, joint secretary at the ministry.

It has been found that black marketers smuggle gold to bordering Indian towns to get IC, which sells at the rate of as high as Rs 168 per IRs 100 in the black market. The Nepal Rastra Bank (NRB)-fixed rate stands at Rs 160 per IRs 100.

Indian market witnessed a rise of Rs 500 in gold price in late evening trade soon after the government decided to hike the import duty, according to the as per the Indian media.

While illegally importing gold from China, a smuggler makes a profit of Rs 230,000 per kg in evaded taxes, according to a trader. On top of that, if the gold is smuggled to India, the smuggler can also earn money by selling the IC (earned from the gold sales) in black market at high rates, the trader added.

An increase in smuggling during the wedding season (when the demand is usually high) is sure to create an acute shortage of the metal in the local market. On top of that, the supply too is small. Despite repeated demand from bullion traders to increase the gold import quota, the NRB says increasing the quota from the existing 15 kg a day would have a negative impact on the economy.

“We do not see the possibility of increasing the gold import quota any time soon as doping so may push up the balance of payments deficit,” said Bhaskar Mani Gyawali, spokesperson for the NRB.

Source: The Kathmandu Post