The Finance Ministry and the Reserve Bank of India, at least for the time being, seem to be on same page on gold. Both of them are in favour of making the precious metal costlier to check the current account deficit.
While Finance Minister P. Chidambaram hinted at making gold costlier, the central bank was more vocal.
On January 2, Chidambaram appealed to the public to moderate the demand of gold, saying, “I may add that we may be left with no choice but to make it a little more expensive to import gold. This matter is under the Government’s consideration.”
Hours later, an RBI working group said fiscal measures to reduce gold imports might be revisited.
There are a number of views on these two statements. The first relates to raising import duty. It is believed that the Finance Ministry is considering raising the duty on standard gold to five or six per cent from four per cent.
If the import duty is raised, this will be the second time in two years. In fact, the Budget 2012-13 raised import duty on gold from two to four per cent. After this, with effect from April 18, 2012, the Government restricted the quantity of concessional gold imports through passenger baggage from 10 kg to one kg.
The increase of import duty did check imports. Government figures show that gold import (in value terms) came down by nearly 24 per cent during April-October 2012.
Smuggling up
However, gold smuggling is on the rise. The Finance Minister has informed the Lok Sabha that the value of gold seized by customs at international borders during April-October rose to Rs 50.02 crore from Rs 15.81 crore.
The other view is to treat gold sale and purchase like shares, and tax the gains. Even the RBI Working Group has suggested plugging loopholes to increase transparency in gold deals.
According to its report, one key reason for investors going after gold acquisition is that there are no major hassles regarding documentation of sale and purchase transactions and its ownership. No one really knows how much gold an individual possesses.
Similarly, there is no need to pay capital gains tax and there are no irritants like tax deducted at source. Though the current rules stipulate that PAN card number is essential beyond a limit for ornament purchases, many jewellery shops flout that norm, the report added.
Hence, it is clear that fiscal measures do not merely mean raising import duty. These also imply making available attractive investment instruments to lower demand.
However, neither the Government, RBI nor any expert has yet suggested ways to change customs and traditions associated with gold in India.
shishir.sinha@thehindu.co.in