Budget 2020: Gold smuggling spikes in 2019; possible duty cut can curb menace

A possible import duty cut on gold in the upcoming Budget could curb smuggling and boost sagging imports. Commerce Ministry has reportedly asked for a reduction in import duty on gold to boost exports and manufacturing in the gems and jewellery sector. Import duty on gold was increased from 10 to 12.5 percent in the previous Budget. But, the gems and jewellery industry wants import duty to be reduced to 4 per cent.

According to analyst firm ICRA's recent research report, gold jewellery demand may remain subdued in FY20 with growth in the range of 6-8% due to elevated gold prices. Gold imports in 2019 were the lowest in three years as prices jumped 18 per cent. Total imports fell 12 per cent compared to 2018. Gold demand in India, in the first half of 2019, was 372.2 tonnes, 9 per cent higher than the first half of 2018, despite a slowing economy.

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Official gold imports in December declined to 39 tonnes from 152 tonnes in November 2019. Industry insiders claim illegal gold smuggling from the Middle East and other countries increased in 2019. About 110 tonnes of gold was estimated to have smuggled into India in 2018. According to the All India Gem and Jewellery Domestic Council sources, smuggled inflows of gold may be higher at about 140 tonnes in 2019. In 2018-19, 166.961 kg of gold worth Rs 52.46 crore was seized from the Kochi airport alone, in comparison to 81.69 kg of gold worth Rs 23.69 crore seized in 2017-18. The Directorate of Revenue Intelligence has observed increased incidents of smuggling from new countries like China, Taiwan and Hong Kong, other than the old smuggling hubs like Nepal, Dubai, Sharjah and other Middle East countries.

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In 2018, some of the Middle East countries imposed 5 per cent duty on gold, which is much lower than the 12.5 percent in India. This means gold is cheaper by upto 15 percent in a place like Dubai as compared to Mumbai. Gold bar purchases are exempted from any duties and gold jewellery purchases have a flat 5 percent duty in the UAE. Further, tourists visiting to the UAE and buying gold can claim a VAT refund at any airport in the UAE.

India, the largest importer of gold (800-900 tonnes), introduced 10 percent import duty in 2012-13. Earlier, it was less than 3 percent. A record 225 tonnes of gold was smuggled into the country in 2014, say sources. The carriers, who bring it on commission, smuggle the yellow metal after melting and moulding it. There have been cases of gold getting smuggled in suitcase handles, white goods and other items. For smuggling a kilogram, the carriers earn upto Rs 40,000 as commission, said sources. 

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