3% GST opens room for cheap import of gold jewellery from FTA countries

Excise duty of 12.5% will be replaced with 3% GST from July

Goods and services tax (GST) of 3 per cent on gold will open a window for cheap jewellery imports from Indonesia and South Korea from July 1.

Now, a 12.5 per cent countervailing duty is charged on imports of such jewellery from countries with which India has free trade agreements (FTAs).

As excise duty of 12.5 per cent will be replaced with 3 per cent GST from July, the countervailing duty would also come down. There would be no import duty on such goods from FTA nations. 

According to a veteran bullion market player, “Instead of a normal duty of 15 per cent on import of gold jewellery, imposing a 3 per cent tax will make it lucrative for importers to flood the Indian market with cheap jewellery.”

In February 2016, the government had proposed 12.5 per cent excise duty on gold jewellery. But jewellers were given input credit, making the effective excise rate 1 per cent. Countervailing duty was fixed at 12.5 per cent.

As the government went on increasing import duty — from nearly 1 per cent in 2011 to 10 per cent in 2013 — to restrict import of gold to control a ballooning current account deficit, some found a loophole in the notification regarding import from FTA countries. This allowed import of gold jewellery at 1 per cent.

As the quantity of such concessional imports rose, the government started taking action. The Customs department started asking for 15 per cent bank guarantee on such imports and later a 12.5 per cent excise duty helped stop such imports. However, a loophole in the notification allows importers to bring spoons and bowls made of gold. When the government changed the definition, importers shifted focus to silver articles. That loophole was also plugged later.

However, GST of 3 per cent on gold has again opened a window of low import duty of jewellery from Indonesia and South Korea. Sudheesh Nambiath, lead analyst, South Asia, at GFMS Thomson Reuters, said: “To stop such imports, a cess on imports equivalent to basic Customs duty may be helpful.”