Import duty hike to push up bullion prices.
Soaring gold prices are set to rise further as Finance Minister Pranab Mukherjee has hiked the customs duty on gold imports.
“I propose to index the rate on gold import from Rs 200 per 10 grams to Rs 300 per 10 grams,” Mukherjee said in his budget speech. The increased rate will apply to gold bars and gold coins.
The FM also increased the customs duty on other forms of gold from Rs 500 per 10 grams to Rs 750 per 10 grams.
As India remains a net importer of gold, the hike in customs duty is sure to be reflected in increased prices of the yellow metal.
“The gold prices will rise but this will have a marginal effect. There could be an initial softening of consumer sentiment but with the strengthening of rupee, the effects will slowly even out,” said Ajay Mitra, managing director, World Gold Council India.
India imported 480 tonnes of gold in the calendar year 2009. The prices have been hovering between Rs 16,000 and Rs 17,000 per ten grams over the past one year.
However, in order to encourage domestic refining capacity of gold, the minister reduced the basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs 140 per 10 grams of gold content. There would also be full exemption from additional duty.
An ad valorem tax implies that tax is levied according to the value added on the processed gold. The earlier regime was felt to be regressive as it resulted in higher tax rates for finer and improved quality of gold.