How current gold tax regime is costing government billions.

The plea of Indian gold jewelers has fallen on deaf ears with no import duty cut announced in the Budget on gold import nor relaxation on 80:20 scheme. Gold import duty is at a record 10 percent has led to slump in demand, high premiums in the local market and 80:20 rule adds to pain by spurring black marketing.

According to All India Gems and Jewellery Trade Federation, for the last three years the sector has been bleeding due to stringent measures adopted by the government.

“ We would urge the government to end the ‘Gold Control Raj’ and rescue domestic Gems & Jewellery Trade from parallel economy and black marketing, by abolishing 80:20 rule and reducing import duty on gold” Haresh Soni, Chairman of All India Gems and Jewellery Trade Federation said expressing anguish.

The current tax structure is not only an impediment for the industry, but it has also cost the government billions in the past, and may continue to dent duty revenue collection, if not tweaked in the future.

During 2012-13, the Government of India raised the import duties on refined gold four times to curb the inflow of gold and help narrow the widening of the current account deficit. Whilst import duties on unrefined gold doré were also raised during this period, the rate of increase did not match that of refined gold.

Currently, the import duty on refined gold is 10.3 percent while the import duty on unrefined or doré gold is 8.24 percent.

A PwC report has revealed that the government is losing approximately Rs 5.6 billion in duty revenue for every 100 tonne of unrefined or doré gold refined in India.

The existing 2.06 percent duty differential between the level of import customs duty paid on refined gold versus the level paid on unrefined gold has the potential to cost the Treasury USD 3 billion (Rs 180 billion) in foregone duty revenue over a five year period, the report said.

According to PwC, up to USD 770.4 million (Rs 46,320,962,665) of import duties could have been foregone by the Government of India in 2013 due to the differential in duties between refined gold and unrefined gold doré (based on the average 2013 gold sport rate of USD 1,410/oz).

On a five-year basis, the average impact of the current tariff regime could result in up to USD 3.0 billion (Rs 181,182,239,837) in tax revenues not being collected by the Government of India.  This long-term modelling is based on assumption that average gold spot price is USD 1,400 per ounce (oz), the report adds.

Further, the report said that tariffs and duties have been a protective feature of taxation regimes for a significant period of time; they are economically distortive.

“It is generally accepted that economic inefficiencies will arise when different tariffs are imposed on different types of goods. A tariff differential can create a ‘dead weight loss’ because the cost to administer the different rates is an economic impediment,” it added.

Source : moneycontrol.com