New Delhi: The Narendra Modi government’s decision to reduce import duties on gold was prompted by the desire to reduce the price arbitrage between the domestic and international market and thereby bring down the incentive for smuggling, Finance Secretary Ajay Bhushan Pandey said.
In an interview to ThePrint, Pandey said when the government had imposed the customs duty on gold, it had a two-fold purpose.
“One was that we wanted to get a little bit of revenue and the second was that we did not want our foreign exchange to be spent on gold beyond a certain limit. So, we raised the duty from 10 per cent to 12.5 per cent. But that time, the price of gold was in the range of Rs 30,000 per 10 grams,” he said.
“However, in the last one and a half years, the gold prices have increased. And because the customs duty is ad valorem (imposed on the price of gold), it was making gold even more expensive and creating a distortion in the market,” he said.
“The difference in the price of gold in the international market and the price of gold in the domestic market was increasing. So, we thought that let us do some rationalisation. So, we brought down the net duty by about two and a half per cent,” he added.
In the budget for 2021-22 presented Monday, it is proposed that the government will bring down the customs duty on gold and silver to 7.5 per cent from 12.5 per cent. However, it levied an agriculture infrastructure and development cess of 2.5 per cent, taking the effective tax rate on gold imports to 10 per cent.
Pandey pointed out that distortions can lead to bad practices. “There will be smuggling, there could be money laundering, or under declaration. We don’t want to encourage those things. We want a simple and compliant regime,” he said.
According to government data, the total quantity of gold seized in 2019-20 was 2,668 kg, as against 2,946 kg of smuggled gold detected in 2018-19 and 2,236 kg of smuggled gold detected in 2017-18. With restrictions on travel due to the pandemic, the detection of smuggled gold has fallen sharply.
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‘Cess won’t add to compliance or financial burden’
The agriculture infrastructure and development cess proposed in the budget will not add either to the compliance burden or economic burden of taxpayers, Pandey said.
Pandey said the cess has been designed with great care to ensure that there is no additional burden from the cess for the taxpayers even as a dedicated fund to meet agriculture infrastructure requirement is created.
“If we need to fund such activity on a sustained basis over the years, we needed a certainty about the funds. We needed dedicated funds and for that purpose, we have created this infrastructure cess. Now, while doing so, our objective was not to put any additional burden on the taxpayer and therefore, we have reduced the existing duty to the extent that the levy of the cess is completely neutralised,” he said.
The agricultural infrastructure and development cess has been levied on items such as cotton, gold and silver dore bars, apples, alcoholic beverage, crude edible oil, coal, specified fertiliser, peas, kabuli chana, bengal gram, lentils, petrol and diesel.
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