Against the industry’s demand to cut customs duty on gold to 4 per cent, Finance Minister reduced the duty from 12.5% to 7.5% on imported gold. But added a 2.5% Agri Infra cess to the imports. In effective terms, however, the duty has been reduced by a little under 2 per cent.
Let’s assume the cost of imported gold is Rs 100. Basic Customs duty of 7.5% on this will bring the cost to Rs 107.50. The 2.5% agri infra cess on this works out to Rs 2.6875. Another Social Welfare Surcharge cess of 10% on the additional duty works out to Rs 0.75. So the total cost of imported gold at Rs 100 value works out to be 107.50+2.6875+0.75 = 110.9375. Thus the duties, cess and surcharge on gold effectively works out to 10.9375%. The earlier effective duty wwas 12.875%. In effective terms, the duty has been reduced by mere 1.9375% only.
However, gold prices plunged by over Rs 2,100 after the Union Finance Minister Nirmala Sitharaman announced the changes in customs duty rate for precious metals. Gold April futures have tumbled Rs 2,136 to Rs 47,201 per 10 grams while the silver March futures surged Rs 4,720 to Rs 74,426 per kg. “Gold and silver presently attract a basic customs duty of 12.5 per cent. Since the duty was raised from 10 per cent in July 2019, prices of precious metals have risen sharply. To bring it closer to previous levels, we are rationalising customs duty on gold and silver,” Finance Minister Nirmala Sitahraman said in her budget speech.
Investors and analysts feel it is a step in the right direction as last year was worse in terms of gold import as higher prices along with pandemic had destroyed gold demand. This move will revive physical gold demand along with clamping down illegal gold importing operations.
The duty has also been reduced on other precious metals including gold dore bar, silver dore bar, platinum, palladium, gold/silver findings, and waste and scrap of precious metals, spent catalyst or ash containing precious metals and precious metal coins. Analysts are expecting that gold may test $1900 per oounce levels in the short term, while silver may test $30 per ounce levels.