India raises taxes on gold imports

MUMBAI: India, the world's largest bullion buyer, raised taxes on gold imports to curb a record current-account deficit and moderate demand for the precious metals that's rallied for 12 straight years.

Source from (Business Times): http://www.btimes.com.my/Current_News/BTIMES/articles/goldtax/Article/
Published: January 22, 2013

The duty on gold and platinum imports will rise to six per cent immediately from four per cent, Economic Affairs Secretary Arvind Mayaram said in New Delhi yesterday. "The tariffs will be reviewed if imports moderate."

Increased taxes may reduce gold demand in Asia's third-largest economy, threatening prices that rallied 7.1 per cent in 2012 as investors held record amounts in exchange-traded products and central banks stepped up purchases. About 80 per cent of India's current-account deficit is attributable to gold imports, according to the Reserve Bank of India. The rupee lost 3.5 per cent last year, falling to a record low of 57.3275 against the US dollar as bullion imports widened the current account to an all-time high.

"Consumption and imports will fall de-finitely like last year because of the higher tax," Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation, said. "This will also help the government reduce the current-account deficit."

Domestic mutual funds, which offer gold-backed exchange traded funds, will be allowed to deposit part of the bullion they hold with banks to boost availability for jewellery and gem making, Mayaram said.

"The advantage will be that a part of the gold lying in stock will be brought into circulation and will partially meet the requirements of the gems and jewellery trade," Mayaram said. "It is hoped that consequently there will be a moderation in the quantity of gold that is imported into the country."

Last March, India doubled the tax on purchases of gold bars and coins to help narrow the current-account gap. Still, demand for gold picked up "significantly" in the July-to-September quarter, the Reserve Bank of India said in its biannual Financial Stability report, which flagged the deficit and said there was depreciation pressure on the rupee.

The current-account deficit widened to US$22.3 billion (RM67.35 billion) in the three months to September 30 as a faltering global economy hurt exports, the central bank said on December 31. The current account is the broadest measure of trade, tracking goods, services and investment income.

Gold imports are "a huge drain," Finance Minister Palaniappan Chidambaram said on January 2, appealing people to moderate demand for the precious metal. Imports by India rose for the first time in five quarters in the three months to September 30, according to the World Gold Council. Purchases jumped nine per cent to 223 tonnes in the third quarter of 2012 from 205 tonnes a year earlier, the producer-funded group said on November 15 last year. Bloomberg