As we move close to the Union Budget day, the country’s gold jewellery trade has started to lobby for a reduction in the taxes rates that the yellow metal is subject to. 

Without a doubt, gold import and jewellery sales are subject to a multiplicity of fiscal levies in the form of duties and taxes (Customs duty, Agri Infra Cess and GST) that cumulate to 13.75 per cent.

The trade’s stand has always been that high rates of customs duty encourage illegal import (smuggling) while high domestic taxes like GST drive customers to the grey or unorganized market where small private jewelry makers service the customers without taxes or tax invoice. This results in loss of revenue for the exchequer and the quality of gold (Caratage) may be suspect.

Recent advertorials of the bullion trade argue for a reduction in highcustoms duty rates, which it claims would reduce illegal import of gold, discourage grey market operations and bring higher revenue. A decrease in GST has also been sought.

But there are larger questions to be addressed. In the last Budget, customs duty on gold import was reduced by 2.5 percentage points. It is unclear what impact the duty reduction had on the gold trade. Did smuggling reduce? Did the gold jewellery sale go up? Were consumers happy? There are no clear answers.

Next, given the government’s precarious financial position, can the FM afford to forego any more revenue from the gold import and jewellery trade? The ravenous appetite for gold in our country is well known. The policymakers are sure to continue to milk it on revenue considerations to the extent possible. In matters of revenue, the principle of ‘what the traffic can bear’ is followed.

Illegal trade

It is claimed that 70-80 per cent of the gold demand is met through the grey market. It is not known what’s the basis of this estimation and how scientific it is. In any case, the trade should know. If it indeed is the case, the gold business calls for a strict regulation from the point of import till the material is sold in the retail.

Whether a mere reduction in taxes would bring about transparency in the physical trade is open to question. At the same time, it is the responsibility of the government to take more stringent steps to curb smuggling.

Importantly, it devolves on the existing organized gold trade to act. Each one of them should vow to identify and help weed out illegal trade; and each one of them should demonstrably show that their business is transparent and strictly follows the Environmental, Social and Governance (ESG) principles.

Transparency in trade

This is a sure way to gain the trust of the policymakers and customers. In our country, given the size of the business, gold trade needs an audit trail that must ascertain the origin (usually in bars), source of payment, disposal of the imported material and conversion into jewellery, and eventual consumer sale/purchase.

In other words, the Indian gold market needs a system of end-to-end traceability that will enhance transparency and bring in good trading practices even while boosting market confidence. The organized gold trade should embrace this for long-term benefit.

 (The author is a policy commentator and commodities market specialist. Views are personal)