GST impact: Gold import surge from South Korea alarms govt

Steps such as safeguard duty in the works to plug the route

A month after goods and services tax (GST) roll-out, a sudden deluge of gold imports from free trade partner South Korea has alarmed New Delhi. Swinging into action, the government is examining several options, including levy of safeguard duty on gold imports from South Korea to plug the route. Officials brainstormed on the matter through Tuesday, it is learnt. Among others, Revenue Secretary Hasmukh Adhia met Commerce Secretary Rita Teaotia to assess the situation.

In July itself, 8,400 kg of gold, essentially in coins, came to the country from South Korea, compared to almost nil last year in the same month. Sources said that traders may be exploiting the favourable reduction in tax incidence under GST by routing imports through Seoul, to take advantage of the India-Korea Comprehensive Economic Partnership Agreement (CEPA), the free trade pact. 

''There is a sharp rise in gold imports after GST implementation, only from South Korea. We are looking at all options available to us as this is a big cause of concern. Before July, we were not getting gold coins or gold medallions, which we are getting now,'' said a senior government official. He added that the FTA route should not be misused as it is going to impact the local domestic market.

The ministry of finance recently notified rules under the India-Korea FTA, empowering the Director General of Safeguards to slap duty on such imports.

Currently, gold imports attract 10 per cent basic customs duty and 3 per cent integrated goods and services tax (IGST).

However, import from Korea is exempted from customs duty under the 2009 agreement, and the importer only has to pay 3 per cent IGST. Until June, the excise duty on gold and jewellery was 12.5 per cent, which was acting as a countervailing duty for imports under the free trade agreement. From July, the excise duty was subsumed in the GST, and hence the protection from gold import under the treaty has also gone.

''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,'' the official quoted above added.

According to sources, there is a possibility of 10 per cent safeguard duty being levied on gold imports from South Korea. However, the rate will be finalised after preliminary findings from the DG-Safeguards are received. The finance ministry is also learnt to have urged the commerce ministry to consider hiking basic customs duty under the bilateral FTA from zero. 

Safeguard duty is a WTO-compatible temporary measure that is brought in for a certain timeframe to avert any damage to a country's domestic industry from cheap imports. India’s comprehensive free trade pact with Korea came into effect from 2010. Under the pact, India agreed to eliminate duties on 75 per cent of products imported from South Korea on a custom-value basis during the eight years from 2010. South Korea agreed to remove duties on 93 per cent of products from India during the same period.

After several complaints, the finance ministry on August 4 notified the India-Korea Comprehensive Economic Partnership Agreement (Bilateral Safeguard Measures) Rules, 2017. The ministry said the industry shall make a formal complaint to the DG, Safeguards, explaining how the zero duty import was adversely impacting it.

Industry officials say gold was mostly trading at a discount last month, and the demand was also weak after the implementation of the GST. As a result, gold imports nosedived to around 30 tonnes, of which 15 to 20 per cent is estimated to have taken place from Korea under zero duty.

Surendra Mehta, secretary, Indian Bullion and Jewellers Association, said, ''Zero duty imports hurt genuine jewellers as their business became unviable. We have complained to the government in past and now we will again complain to the DG-Safeguards.''

A sources said, ''Since the issue is arising due to the treaty between the two countries, the government has moved with safeguard measure to make it legally tenable.'' However, the increased duty can remain in force only for a period not exceeding 200 days from the date of its imposition.

The government is also considering verifying rules of origin (ROO) certificates of the importers, to ensure that a minimum value addition has been done in Korea. 

In 2013, government raised the issue of violation of value addition norms by Thailand and alerts against them were issued. In 2015,  it plugged gold imports routed through Indonesia,  with the customs department asking importers of jewellery at 1% duty to submit bank guarantee worth 15% in case if 1% duty is not permissible.