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Survey hints at higher tax on gold sparks market worry

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After the governments Economic Survey for 2015- 16 hinted at higher taxes on gold, analysts are ruling out a cut on its import duty in the coming budget. Instead, a smaller excise duty, perhaps around two per cent, on jewellery manufacturing looks possible.
The Survey has a full chapter on commodities it says are highly subsidised. Gold is one and it says this is a strong demerit good, as 80 per cent is consumed by the top 20 per cent among income earners, while it is taxed at 1- 1.6 per cent, compared with about 26 per cent for normal goods ( the central government’s excise tax on gold is zero, compared with 12.5 per cent for normal commodities.) This is seen as a hint for increase in taxes on gold. “ A hike in customs duty will be a difficult call due to various other social risks attached to it, and instead an excise duty of two per cent seems the most probable event. Thus, add two per cent to the 10 per cent customs duty and other state and central taxes of 1- 1.6 per cent, and this will make the taxation at par with normal commodities.
This can also be a preparation ahead of the GST ( goods and services tax) rollout,” said Sudheesh Nambiath, a lead analyst for precious metals at GFMS Thomson Reuters.
However, if such taxes are imposed on jewellery, there would be much protest from the industry.
So far, market players were expecting a two per cent cut in import duty and the futures market had discounted this long before. However, with Fridays official observation, the market has started worrying on what the new taxes could be. For even a two per cent cut in import duty, the government would have to forgo revenue of Rs.4,500 crore, unlikely in the current fiscal situation.
Business Standard, New Delhi, 27th February 2016

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