The government is considering slashing customs duty on gold from 12.5% to 7.5%, which would significantly reduce the profit margin on smuggling of the precious metal compared to the risk of being caught, two persons familiar with the development said.
Customs field formations across the country have reported large-scale smuggling of gold mainly because of lucrative margins. Policy-makers feel that there is a need to reduce this margin by slashing the import duty on gold, which was raised from 10% to 12.5% in the 2019 budget presented on July 5, they said, requesting anonymity.
“The proposal to reduce customs duty on gold has been under active consideration. Depending on the approval of the competent authority, a decision on this matter could come in this budget or later as gold smuggling is on the rise, with only 6-7% detection rate,” one person said.
Gold smuggling has become a lucrative business for unscrupulous elements because of pent-up demand, high levies of 12.5% customs duty and 3% integrated goods and services tax (GST), he added.
The latest Economic Survey, tabled in Parliament on Friday, said gold has emerged as a “safe-haven investment” in the backdrop of the pandemic-induced economic uncertainties, with prices increasing by 26.2% in November, 2020 as compared to December, 2019. Gold is currently sold at ₹49,106 per 10 gram.
“From January 2020 onwards, gold prices have sharply increased with the sharp rise in the GEPU [Global Economic Policy Uncertainty]. In fact, compared to other assets, gold had returns during the year that were considerably higher,” the survey said.
Since March 25 last year, when a nationwide lockdown was announced to check the spread of Covid-19, there was a shift in smuggling of gold from air routes to the land borders, a second official said.
According to experts, high customs duty on gold helps the government in reducing gold imports, which is good to keep trade deficit under check.
