India, the world’s biggest gold user, raised the tax on imports for a third time this year to curtail demand and contain a record current-account deficit that’s weakened the rupee to an all-time low.
The tariffs on gold and platinum imports were increased to 10% from 8%, while the levy on silver was boosted to 10% from 6%, the Ministry of Finance said in a notification tabled in parliament today. Taxes on shipments of gold concentrates, ores and dore bars will rise to 8% from 6%, while the duty on silver dore bars will climb to 7% from 3%, the ministry said in a statement.
Finance Minister Palaniappan Chidambaram plans to curtail gold imports to 850 metric tons this year to reduce the current- account deficit and boost capital inflows by allowing state-run financial companies to issue “quasi-sovereign” bonds to finance infrastructure investments. The deficit, mainly fueled by crude oil and bullion imports, is the biggest risk to the $1.9 trillion economy, according to the central bank. The rupee fell to a record low of 61.8050 per dollar Aug. 6.
“An increase in taxes will boost local prices and increase smuggling,” said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. “Gold imports may not be more than 150 tons in the July-December period.”
India imported 478 tons in the six months through December last year, taking full-year purchases to 860 tons, according to the World Gold Council. The government also increased the excise duty on refined gold to 9% from 7%, and that of silver to 8% from 4%, the ministry said.
Spot gold fell 0.6% to $1,330.09 an ounce at 6:59 p.m. in Mumbai. The metal rebounded 13% since reaching a 34-month low of $1,180.50 on June 28. Gold for delivery in October advanced as much as 1.4% to 29,333 rupees ($480) per 10 grams on the Multi Commodity Exchange of India Ltd. and was last at 28,990 rupees.
Imports by banks and other traders have come to a standstill after the Reserve Bank of India on July 22 said shippers may supply gold only to the jewelry business and bullion dealers who sell to jewelers. Importers have to retain 20% of the gold in bonded warehouses and will be allowed to make fresh purchases only after at least 75% of the quantity has been exported, according to the bank.