Gold and silver import duty doubled: effective rate 18.4%
Why in the news
To guard foreign exchange during the West Asia crisis, the government made gold and silver imports much costlier through two late-night notifications, effective the next day.
Key facts
- Effective tax on imports doubled: about 9.2% to about 18.4%.
- Two notifications were issued late on a Tuesday night and applied from Wednesday.
- Trigger: pressure on the Current Account Deficit, rupee and forex reserves from higher crude costs.
- It follows PM Modi’s call to cut gold buying for a minimum of one year.
Tax structure
| Component | Earlier | Now |
|---|---|---|
| Basic Customs Duty | 5% | 10% |
| AIDC | 1% | 5% |
| IGST | 3% | 3%, unchanged |
| Effective total | ~9.2% | ~18.4% |
Government reasoning
- Prudent management of the external sector amid crude oil volatility.
- Keep forex for essential imports: crude, fertilisers, industrial raw material, defence needs, critical technology and capital goods.
- Gold and silver are driven by consumption and investment and cause a large forex outflow.
Concerns
- Jewellers, refiners and trade bodies called the move retrograde and blunt.
- Demand is tied to weddings, festivals and gifting, so it may not fall much.
- Higher duty makes smuggling more profitable.
- Jewellery employment, a big informal-sector source, could shrink.
Background
- India is among the largest gold consumers, around 20-25% of global demand.
- Gold is the second-largest item in the import bill after crude, so it affects CAD, the rupee and reserves.
- AIDC began in Budget 2021-22 to fund agriculture infrastructure; as a cess it is outside the divisible pool shared with states.
- IGST is charged on assessable value plus customs duty.
- In the 2013 taper tantrum, duty was lifted to 10% with the 80:20 rule; imports eased but smuggling grew.
- India typically imports 600-900 tonnes of gold a year; idle household gold is estimated at over 20,000 tonnes, which the Gold Monetisation Scheme tries to tap.
- India imports roughly 80-90% of its crude, so a weaker rupee and wider CAD also feed inflation.
- SGBs typically pay 2.5% a year; high prices of legal gold widen the gap with global prices, which fuels smuggling through land, sea and air routes.
- Alternatives: Sovereign Gold Bonds (issued by the RBI for the government, fixed interest plus price gain), the Gold Monetisation Scheme (2015), gold ETFs and better financial inclusion.
Exam angle
- Components: BCD 10%, AIDC 5%, IGST 3%.
- AIDC introduced in Budget 2021-22; GMS launched in 2015.
- Link: gold imports -> dollar demand -> weaker rupee and wider CAD.