As gold smuggling rises, India's tax office calls for lower import duty


By Shruti Srivastava
The Indian Express, Mumbai
Monday, October 27, 2014

NEW DELHI, India -- Seizures of smuggled gold by the directorate of revenue intelligence has risen by an unprecedented 330 per cent during the April-September period as compared to last year, prompting the directorate to call on the finance ministry to bring down the import duty on the yellow metal and make smuggling less lucrative.

This development comes even as gold imports have jumped by around 450 per cent year-on-year in September touching $3.75 billion, which calls into question the effectiveness of the high import duty of 10 per cent.

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Experts say that import duty has failed to as a deterrent and demand for gold has only gone up.

"There were 2,150 seizures of gold made by the DRI across the country worth over Rs 600 crore in the last six months. This is huge when compared to 500 seizures worth Rs 150 crore made last year during the same period," a government official told The Indian Express on the condition of anonymity.

According to a report by the DRI, gold seizures made up for 24.58 per cent of the total seizures last year compared to 8 per cent of the total seizures in 2012-13. It seized 1,267.26 kg gold in 2013, 200.75 kg in 2012 and 153.26 kg in 2011, according to available figures.

"DRI director general Najib Shah has written to revenue secretary Shaktikanta Das pointing out that the imports have gone up drastically despite high duty. Gold smuggling has emerged as a huge menace for the country. In view of the current situation, the finance ministry should take some decision on the high duty rate. Also, it is resulting in huge foreign exchange outgo," the official added.

In the budget for 2014-15, the government did not reduce the import duty on gold despite the current account deficit coming down to 1.7 per cent in 2013-14 from a high of 4.8 per cent in 2012-13.

Last year the government had taken a slew of measures, including raising the import duty to 10 per cent in phases and restrictions on import, to cut down gold imports. However, the measures led to a rise in smuggling.

Ajay Sahai, director general, Federation of Indian Exports Organisations, said that smuggling is on the rise due to the high duty and not supply shortages."Availability and price are the two factors which contribute to gold smuggling. Clearly, there is no supply shortage as evident by high imports in the last few months. High duty is now becoming counterproductive.

"Availability and price are the two factors which contribute to gold smuggling. Clearly, there is no supply shortage as evident by high imports in the last few months. High duty is now becoming counterproductive.

"It is alarming, even if it is a 50 per cent rise in import of the metal month-on-month. If the government brings down the duty, smuggling will come down,” he added.

The current account deficit during the first quarter of the current fiscal narrowed to 1.7 per cent of GDP from 4.8 per cent of GDP during the same period last fiscal. This was largely helped by a steep decline of 52.7 per cent in gold imports during the first quarter.

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