Union Budget 2024: Sharp import duty cut to burnish gold and silver

Diamond industry to also benefit from change in safe harbour rules

Union Finance Minister Nirmala Sitharaman on Tuesday announced a sharp cut in import duties on gold and silver, from 15 per cent to only 6 per cent. This move will end the decade-old approach of discouraging gold buying. Along with this, the Union Budget 2024-25 has also met the diamond industry’s age-old demand of safe harbour to overseas mines.

Sachin Jain, regional CEO, India, World Gold Council, said: “Gold and silver basic customs duty (BCD) reduction from 10 per cent to 5 per cent and Agriculture Infrastructure & Development Cess (AIDC) from 5 per cent to 1 per cent will boost the overall competitiveness of the domestic jewellery industry. It will effectively reduce the overall taxes on gold from around 18.5 per cent (including GST) to 9 per cent.”

Additionally, the import duty for gold dore and silver dore has also been reduced to 5.35 per cent. Dore refers to unrefined metal. Previously, the import duty on gold dore was 14.35 per cent, which was 0.65 per cent lower than refined gold. While this difference still remains as the duty on gold dore is now 5.35 per cent, it is seen benefitting gold refineries. Import duty on gold findings and similar products has also been aligned with that of gold.

One significant advantage of this duty cut is that it will help curb the import of gold through illegal channels. In a report, Chirag Sheth, principal consultant for India at Metal Focus, noted: “Previously, the smuggling cost accounted for 6-7 per cent, while the total tax, including GST, was 18 per cent. Now, the overall tax has been reduced to 9 per cent, causing smugglers to lose their profits.”

Metal Focus has estimated that gold smuggling in India was around 100 tonnes in 2022, and due to a sharp rise in prices, it increased to 155 tonnes in 2023.

The share price of jewellery companies such as Titan (up 6.63 per cent), Kalyan Jewellers (up 4.53 per cent), etc. saw good gains on Tuesday, as the market seems to believe that lower gold prices will improve demand for organised players.

Sheth said that demand will rise following the duty cut, especially with the favourable monsoon season. As soon as the duty cut was announced, gold and silver prices fell by 4-5 per cent on MCX futures. A similar drop was observed in the physical market. In Mumbai’s jewellery market, standard gold price was down 4.9 per cent to Rs 69,323 per 10 gram and silver was down 3.7 per cent to Rs 84,919 per kg.

Market sources indicate that jewellers currently hold an estimated stock of 400-500 tonnes of gold bars and jewellery. The value of it has decreased due to the price drop.

Imports of gold and silver at lower duty from UAE under the Comprehensive Economic Partnership Agreement (CEPA) were rising but this duty cut will reduce incentive for the same. Reduction in import duty will also stop imports of gold masked as platinum.

The diamond industry’s major demand for safe harbour rates for foreign mining companies selling raw diamonds in the country has also been met. Major global diamond mining companies plan to sell their rough diamonds in India at Special Notified Zones (SNZs) where smaller players can directly buy from them instead of travelling to Belgium and Dubai. From now on, these foreign mines will not be considered as permanent entities, giving them a major relief.

Vipul Shah, chairman, Gems & Jewellery Export Promotion Council (GJEPC), said: “SNZs are in Mumbai and Surat, and the Council has proposed to open a third such zone in Jaipur for rough gemstones.”

Equalisation Levy at the rate of 2 per cent of consideration received for e-commerce supply of goods or services shall no longer be applicable from August 1, 2024 onwards. This will boost the e-commerce business of diamond jewellery though digital platforms.

Rahul Guha, director, CRISIL Ratings, said: “With safe harbour rates for foreign mining companies selling raw diamonds in India, import prices for diamonds will reduce, which will have a spillover effect on polishers and exporters, reducing export and retail prices in tandem. This will likely push polishers’ volumes in an otherwise subdued export environment, while supporting operating profitability.”