Indian custom officials have seized 1,197.7 kg of smuggled gold in the April-June quarter, an increase of 23.2 per cent compared with the same period a year ago, according to a government official, as reported by Reuters.
The illegal trade could rise further in coming months as India, the world’s second biggest gold consumer, raised an import tax on gold by 2.5 percentage points to 12.5 per cent in July’s federal budget, effectively increasing smugglers’ margins, industry officials told Reuters.
“The duty difference has been encouraging people to smuggle in gold from the Middle-East,” an official with the Directorate of Revenue Intelligence (DRI) said to a Reuters correspondent.
Gold smuggling has also boosted illegal forex transactions used to finance smuggled gold. Gold smuggling has been rife since 2013 when India raised import duties on the metal to 10 per cent in an effort to curb demand to reduce the country’s current account deficit.
Grey market operators – businesses that smuggle gold from overseas and sell it for cash to avoid the duties – got a further boost in 2017 when India imposed a 3 per cent sales tax on bullion.
In 2018/19 fiscal year that ended on March 31, customs officials seized 4,058 kg (4 tonnes) of gold, up from seizures of 3,223.3 kg a year ago and 429.17 kg in 2012/13, the DRI official said.
Grey market operators usually sell gold at discounts to prevailing market prices as they evade paying the 15.5 per cent tax (includes import tax plus the sales tax), denting business of banks and bullion dealers. .
The World Gold Council has said up to 95 tonnes of gold was smuggled into India in 2018, although India’s Association of Gold Refineries and Mints and other industry bodies put the figure at more than twice that.
Smuggled gold, usually brought in the form of kilo bars, is then melted to make jewellery and small coins and bars. Local gold prices in India touched Rs.40,000 per 10 grams last week.