Gold may become costlier by Rs 100 on higher import duty

Gold is likely to become costlier by atleast Rs 100 per 10 grams, while silver may become expensive by Rs 500 per kg as the Finance Minister has proposed to raise the customs duty on these precious metals.

In his Budget speech for 2010-11, Finance Minister Pranab Mukherjee has proposed that customs duty on gold and platinum will increase to Rs 300 per 10 grams from Rs 200 per 10 grams.

On silver, the import duty has been raised to Rs 1,500 per kg from Rs 1,000 per kg.

"Gold prices will go up by Rs 10,000 per kg, while silver will become costlier by Rs 500 per kg after the import duty is imposed," brokerage firm Karvey Comtrade analyst said.

Gold spot prices in the national capital ruled at Rs 16,960 per 10 grams, while in Mumbai it was at Rs 16,930 per 10 grams and in Ahemdabad it was at Rs 16,920 per 10 grams.

The analyst said higher import duty will have an immediate impact on the domestic demand as jewellers are expected to pass on the burden to the consumers.

This will also have an impact on import of gold and silver, the analyst added.

Echoing the view, Bonanza Vice-President (Commodity) Tarun Satsangi said, "The move will lead to higher import cost, which in turn will affect the prices in the domestic market."      Gitanjali Gems Group Chairman and Managing Director Mehul Choksi said, this will increase the gold price by 0.5 per cent and silver price from 2-3 per cent."

Satsangi, however, added that the rise in prices to some extent may also affect the demand for the precious metal.

Quoting the market movement, Satsangi said, after the Budget announcement silver prices moved up by Rs 450 per kg immediately, although there was no movement in the international markets.

On the proposed reduction in customs duty on rhodium to 2 per cent from 10 per cent, Choksi said, "It is a welcoming step since rhodium is mostly used as a raw-material for making jewellery and this would encourage use of the commodity."

To encourage domestic refining capacity for gold, the Finance Minister also proposed to reduce 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 with full exemption from special additional duty.

At the current rate, importers had to pay about Rs 340 per 10 grams, now it has been fixed at Rs 140 per 10 grams irrespective of the price movement.

Further, the excise duty on refined gold made from such ore or concentrate is proposed to be reduced from 8 per cent to a specific duty of Rs 280 per 10 grams.

Analysts believe that this move is not going to impact the domestic market much as the country mainly imports gold in the form of bars and coins.