Gold import duty hike may spur smuggling: WGC

The hike in import duty on gold could spur smuggling of the precious metal, especially during the festivals when the demand soars, the World Gold Council (WSG) warned today.

"We hope that this higher duty rate does not add to significant trading through non-official channels. The difference in price between the internationally-sourced and domestic gold widens to 3-3.5 per cent per 10 grams due to additional taxation and this could lead to increase in smuggling, especially during festivals," WGC said.

The Budget announced a 100 per cent increase in customs duty on serially-numbered gold bars and gold coins to Rs 200 per 10 grams. Customs duty on other forms of gold was also raised to Rs 500 per 10 grams.

WGC also warned that the rise in gold import duty in the Budget would put more pressure on the gold market, already suffering from high local prices and lower consumer spending.

The Indian gold market is extremely sensitive to price.

"We have recently seen record rupee prices, and coupled with the impact of global recession this has put a significant dampener on local gold demand," the Council said.

"While we welcome the broader confidence-boosting package, which we believe will help drive consumer spending, we caution the addition to gold import duty, which will inevitably add cost to the end consumer and impact gold demand," World Gold Council's Managing Director Indian Sub-continent Ajay Mitra said.

The rise in import duty on gold bullion from Rs 100 to Rs 200 per 10 grams and the Rs 100 duty that has been applicable since 2004, when the gold price was Rs 5,800 per 10 grams are among the main problems faced by the industry, the Council said.