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Indian traders are likely to import 25 tonnes of gold from South Korea in July and August, taking advantage of a recent tax change that allows importers to ship in gold without paying a 10 per cent customs duty, industry officials told Reuters.
The cheap imports are putting pressure on local refiners and banks who cannot match the steep discounts being offered on bullion sales from the duty-free gold from South Korea.
"Already 12 tonnes have been landed from South Korea since the implementation of GST. By the end of this month imports could be around 25 tonnes," James Jose, secretary of the Association of Gold Refineries and Mints told Reuters.
India, the world's second biggest gold consumer after China, imposes a 10 per cent import duty on gold, but this does not apply to countries with which it has signed Free Trade Agreements (FTAs), like South Korea.
To avoid duty-free imports from those countries, India previously imposed a 12.5 percent excise duty. However, this was scrapped along with other local taxes when a Goods and Services Tax (GST) was introduced from July 1.
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"Those who are importing from South Korea are reaping windfall gains," said Rajesh Khosla, managing director of MMTC-PAMP India, the country's biggest refinery.
"They are saving the 10 percent import duty. So they can give a $10 or $15 discount. Refiners are operating with a 0.65 percent margin. We cannot compete with someone who is giving a 1 percent discount," Khosla said on the sidelines of the International Gold Convention in Panaji, capital of India's western resort state of Goa.
South Korea is favoured for importing gold over other countries that India has FTAs with because of its ability to deliver bullion in the form of coins or other articles, which do not attract the import duty.
Gold discounts in India widened earlier this month to $11 an ounce, the highest in more than 10 months.
"The government is aware of the issue and we have asked industry associations to provide more data," said a government official, who declined to be named.
The government has asked traders who are importing gold under free trade agreements to fill in a questionnaire that asks them to specify whether the goods are manufactured in those countries, the official said.
"Very soon this issue will be resolved by putting on a countervailing duty," he said.
In the first seven months of the 2017, gold imports more than doubled from a year ago to 550 tonnes, according to provisional data from consultancy GFMS.
