 | « Back to article | Print this article |
While an import duty is ruled out, a small excise duty on jewellery manufacturing can be on the cards.
The Economic Survey for 2015-16 has hinted at higher taxes on gold. While Survey has not pointed out in which form that could be, the analyst fraternity is ruling out a cut in import duty.
Instead, a small excise duty, which could be around 2 per cent on jewellery manufacturing, looks possible.
The Survey has a full chapter on commodities that are highly subsidised, which include gold, LPG, kerosene, electricity, railway fares and aviation turbine fuel.
On gold, the Survey points out that gold is a strong demerit good as 80 per cent is consumed by top 20 per cent income earners while it is taxed at 1-1.6 per cent compared with tax of about 26 per cent for normal goods (the central government's excise tax on gold is zero compared with 12.5 per cent for normal commodities.)
This is seen as a hint for increase in taxes on gold.
"A hike in customs duty will be a difficult call due to various other social risks attached to it, and instead an excise duty of 2 per cent seems the most probable event. Thus, add 2% to the 10% customs duty and other state and central tax of 1 to 1.6%, this will make the taxation on par with normal commodities. This can also be a preparation ahead of GST rollout," Sudheesh Nambiath, Lead Analyst- Precious Metals Demand, South Asia & UAE, GFMS Thomson Reuters.
However if such taxes are imposed on jewellery there may be a big hue and cry by the industry although one thing remains as Sudheesh pointed out, "gold is not a commodity which is comparable with other consumption items".
So far market players are expecting 2 per cent cut in import duty and futures market has already discounted this long ago.
However, with today's observation by finance ministry, market started worrying about what could be the new tax.
Even for 2 per cent cut in import duty government would have to forgo revenue of Rs 4,500 crore approximately, which looks impossible given current fiscal situation.
Richa Gupta, Senior Economist, Deloitte however thinks differently. She said: “gold is consumed in India, not as expenditure but more as an investment where it is considered as a safe asset.
Accordingly while the argument may be to control subsidy, the ripple effects of any proposed change to the duty structure, whether import duties or excise duties, would have to be carefully analysed by the government.
Currently, it seems that the government is more focused on influencing the saving patterns by inducing consumers to monetise their existing gold assets and increasingly save more in gold denominated instruments.
However if the consumers do move towards paper gold, then it seems that possible curbing of such unaccounted for subsidies may also be one of the unintended consequences.”
