India removes excise tax on gold jewelry


By Biman Mukherji and Debiprasad Nayak
The Wall Street Journal
Monday, May 7, 2012

NEW DELHI -- Indian Finance Minister Pranab Mukherjee Monday removed the excise tax on sales of all gold jewelry, a move that will calm retailers who went on strike when the scope of the levy was widened in March.

In the federal budget on March 16, Mr. Mukherjee imposed a 0.3% excise tax on non-branded gold jewelry. Branded-jewelry sales by companies such as Tata group's Tanishq already attracted a 1% tax.

Both levies have now been scrapped, Mr. Mukherjee said in Parliament Monday as he unveiled amendments to budgetary proposals.

He also raised the threshold limit for taxation on cash purchases of gold jewelry to 500,000 rupees ($9,350) from the budgetary proposal of 200,000 rupees.

However, the minister left unchanged a proposal to double the import tax on gold to 4% from 2%.

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The budgetary measures were aimed at increasing the cost of gold purchases and curbing its consumption. Gold is India's second-largest import item by value after crude oil.

But the tax rollbacks could revive the precious metal's demand in India, the world's largest gold consumer, partially defeating its objective of attacking a widening current account deficit.

"Gold demand will likely improve. It's a good decision," Prithviraj Kothari, president of the Bombay Bullion Association, said of the scrapping of the excise tax.

Jewelers were most worried about the excise tax as they said it required far more paperwork and increased the chances of harassment by tax officials.

"The removal of excise duty is positive news for the gems and jewelry industry," said Bachhraj Bamalwa, chairman of the All India Gems & Jewellery Trade Federation.

Madan Sabnavis, chief economist at CARE Ratings, said the scrapping of the tax would just about offset the impact of the weakening rupee that has pushed up local prices.

Domestic gold prices are currently quoting near all-time highs at around 29,500 rupees per 10 grams, while at 0444 GMT, international spot gold was at $1,637.83 a troy ounce, far below its peak of $1,920.94.

Earlier Monday, Mr. Kothari said gold demand in Mumbai, the country's trading hub for precious metals, had plummeted to 200-300 kilograms a day, compared to 1.0-1.5 metric tons a day last year, largely because of the impact of the sliding rupee.

He said India's gold imports would likely total 750-800 metric tons in 2012 if the June-September monsoon rainfall is normal.

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