Lower import duty for gold refineries discriminatory: Jewellery industry

High import of unrefined gold because of anomaly in import duty

Faced with unprecedented rise in import of unrefined (dore) gold, gem and jewellery players have urged the government to rationalise tax benefits to domestic refineries.

These refineries enjoy tax benefits of two per cent, which in bullion trade parlance is very big, as the jewellery industry is operating with wafer-thin margins. Domestic refineries enjoy net one per cent lower duty incidence benefit after Cenvat and refiners in excise free zones like Uttarakhand enjoy net two per cent benefit. Hence they are better placed to sell gold at a competitive price. They sell gold at a little discount and hence jewellers buying from them are better placed compared to those who are dependent on imports. “Hence, the government should rationalise the benefits granted to gold refineries. While there is a need to give lot of impetus to domestic refineries, but, at the same time, other players in the industry should not suffer,” said Praveen Shankar Pandya, chairman, Gems and Jewellery Export Promotion Council (GJEPC).

Data compiled by the World Gold Council (WGC) showed 22 per cent of India’s overall gold import during the July–September quarter this year was in form of unrefined form. India’s overall gold import at 300.6 tonnes in the quarter, of which dore was 66.1 tonnes, the highest ever. In the same period a year before, import of dore was 11.8 tonnes of the total bullion import of 242.6 tonnes.

There has been an unusual high import of unrefined gold in the last few months because of the anomaly in import duty. According to trade sources, import of pure gold attracts a duty of 10 per cent as against lower duty on unrefined gold. Usually gold dore has 75 to 90 per cent of pure gold content.

According to a senior industry official, the cost of gold production through locally processed refineries is lower than imported cost. So, the cost of gold procurement for jewellers that have no access to refineries is higher than their competitors linked with refineries.

The import duty on unrefined and refined gold was the same until early this year, which kept import of dore unviable.

“While we want the government to promote local refineries, the benefits should be narrowed down,” said Pandya.

Dore import offers better margins for domestic refiners. Better margins also mean higher wrestling power for domestic refineries in determining the prices in global markets, where premiums normally go up during festive demand. Earlier, these refineries were surviving with gold recovery through scrap processing, resulting in low capacity utilisation.