India’s recent indirect tax reform goods and services tax (GST) has stirred up the bullion sector. The lure of gold, both as jewelry and as investment, in India has been a long standing one and the country has been one of the biggest importers and consumers of yellow metal.
In the run up to the introduction of GST on July 1, there was a gold rush with imports in June surging to 75 tons from 22.7 tons in the year-ago period. Consumers wanted to avoid paying higher tax and feared that gold prices would rise due to fall in imports once the GST kicks in.
However, after the implementation of GST, Indian finance ministry officials are baffled by a surge in gold imports from countries with which it has free trade agreement (FTA), especially South Korea. In July itself, 8,400 kg of gold, essentially in coins, came to the country from South Korea, compared with almost nil last year in the same month, reports Business Standard.
Currently, gold imports attract 10% basic customs duty and 3% integrated goods and services tax (IGST). However, import from South Korea is exempted from customs duty under the 2009 agreement, and the importer has to pay only 3% IGST.
“Korea is not a gold manufacturing country. So, certainly yellow metal imports from a third country are being routed from there to take advantage of the zero duty available under the FTA,” a government official told the daily.
Indian finance ministry is looking at various means to plug these imports. One option is to implement safeguard duty — a WTO-compatible temporary measure that is brought in for a certain time-frame to avert any damage to a country’s domestic industry from cheap imports. The other is to increase basic customs duty under FTA, which is currently zero.
Industry experts claim that flow of gold from South Korea has also opened a channel for gold importers to launder money out of the country, reports Business Standard. These importers prefer gold coins as they offer a greater scope for over-invoicing than gold bars. And, through over-invoicing, they are able to illegally send extra dollars out of the country.