Before four years around mid-august, when my parents had visited Dubai, they bought gold jewellery and brought it to India straight from UAE. I wondered why they bought gold from Dubai when it can be bought in India too. Have your relatives bought gold from foreign countries too?
Later I realized that the reason behind doing so is "Customs Duty".
So, What is Customs Duty?
Customs Duty is an indirect form of tax levied on goods that are transported across countries. It is applied to all the goods that are imported to India and few goods that are exported from India via sea, land, or air. Duty on goods that arrive in the country via parcel or as baggage when a person travels from one country to another is also collected in the same way. The duty imposed on the import of goods is called import duty and the duty imposed on the export of goods is called export duty.
What role did customs duty play in prompting my parents to buy gold from a foreign country?
On July 1, 2017, a new regime was rolled out. According to it, 3% goods and services tax was introduced in India. Due to this, the cost of gold in India shot up and thus gold became costlier in comparison to countries like UAE, Hong- Kong, Sri Lanka, Singapore, etc. Zaveri Bazar had quoted the cost of gold in India as ₹ 29,201 per 10 gram, inclusive of import duty and GST whereas the cost of gold in Dubai is ₹ 25,524. So it was lucrative to purchase Gold from Dubai. Thus the revised tax structure for gold in India prompted them for the same.
The below graph provides insights into how the tax structure has transformed over the years from 2012 to 2019. Thus the rise in custom duty led to the rise in prices of gold in India prompting Indians to buy gold from foreign countries at a profitable rate.
On the 1st of February this year, the Finance Minister of India, a country that has the world’s second-biggest bullion market announced the union budget of the year 2021-22 which has reduced basic customs duty on precious metals like gold and silver from 12.5 percent to 7.5 percent, which will reduce retail prices and make exports more competitive.
The budget also reduced gold and silver dore bar customs duty from 11.85% to 6.9% and from 11% to 6.1%, respectively. Customs duty on platinum and palladium were also reduced from 12.5% to 10%. However, part of this benefit will be nullified or receded by a 2.5% agriculture infrastructure and development cess.
Due to the rise in prices of gold and high customs duty, there was a spike in incidents of gold smuggling into the country through airports and seaports but after the gold customs duty cut proposal, smuggling is likely to be reduced to a great extent.
Previously, high duty on precious metals like gold had made our country's exports uncompetitive as people preferred to buy precious metals from countries like Dubai, Hong-Kong, Sri Lanka, etc, where gold prices are much lower as compared to India but after the declaration of the union budget, a boost in demand for precious metals is likely to be seen as a result of lowered import duties.
Coming to the latest news, prices have decreased by ₹ 1100 per gram. Will this huge decrease in prices prompt Indians to buy gold from their land instead of buying it from foreign lands? Well, it depends on various other factors that affect foreign investments in gold. Less Customs duty and Lower rates are not the sole reason Indians prefer to buy gold from foreign nations. A Glimpse of it is as follows:
● Some countries like Dubai, Hong-Kong, Zurich are known for their Pure Gold.
● Indian people are more convinced to buy gold from foreign countries as they believe it to be of better quality.
● It is a common custom that when you visit a country, you must buy something famous in that country.
● It is a fact that the quality and vividity of designs of gold jewellery in countries like Dubai is very fascinating.
● As Foreign Nations like Dubai are very famous for their Gold market, it is bound to attract tourists.
Do you think decreasing the customs duty will attract growth in the demand for gold in India?
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