Gold Imports by India Jump Fourfold as Tax Fear Spurred StockingBy and
Traders built up inventories on fear of higher national tax
Overseas shipments to slacken from this month, analyst says
India, which vies with China as the world’s top gold consumer, saw a fourfold increase in imports of the precious metal in May as traders stocked up fearing that the government would fix a higher rate for jewelry under a new national goods tax to be implemented from next month.
Overseas purchases advanced to 126 metric tons in May from 31.5 tons a year earlier, according to a person familiar with provisional data from the finance ministry, who asked not to be identified as the data aren’t public. Finance Ministry spokesman D. S. Malik declined to comment on the data.
India fixed the goods and services tax for gold at 3 percent, effective from July 1. The rate is lower than expected, Ketan Shroff, joint secretary at the India Bullion and Jewellers Association Ltd. said on Monday. The duty will replace more than a dozen domestic levies including excise tax and state tariffs, making India a common market for the first time.
“The massive import numbers were because people were worried about the kind of taxation that would come in but now that the tax has been fixed at a lower rate, imports will moderate going forward,” said Kunal Shah, head of research at Nirmal Bang Securities Pvt. by phone from Mumbai. India’s monsoon is expected to be normal and that would further underpin a demand recovery, he said.
Demand is projected to rise to between 850 tons to 950 tons by 2020 from an estimated 650 tons to 750 tons this year buoyed by the new tax regime, the World Gold Council said in a report Thursday.
While the industry will go through a period of adjustment, the net impact on the gold industry will be positive, the council said. “The gold supply chain should become more transparent and efficient, and the tax reform could boost economic growth, which we see as supporting gold demand.”
In the financial year ended March 31, the country’s imports dropped 20 percent to 716.4 tons, according to the finance ministry. Indians buy gold during festivals and for marriages as part of the bridal trousseau or as gifts. The nation imports almost all the gold it consumes.