Traders uneasy over gold glut from Thailand

Rajesh Bhayani / Mumbai Mar 20, 2012, 01:01 IST

A sharp increase in the import duty of gold has created the possibility of a flood of cheap import of jewellery made of the yellow metal from Thailand. For, there exists a free trade agreement (FTA) between New Delhi and Bangkok that is valid since 2004, permitting import of gold jewellery with duty under one per cent. The pact was signed at a time when there was minuscule import duty on the gold imported to India.
Now, the gold import duty has been increased to four per cent. In fact, with education cess, the figure comes to 4.12 per cent. Thus, importing gold jewellery from Thailand has become cheap, thanks to the FTA. Currently, there is some

import of jewellery happening from Thailand, but its magnitude can go up significantly if the difference in duty persists. “The discrepancy is huge,” notes Sanjay Kothari, vice chairman of the Gems and Jewellery Export Promotion Council. “It should be corrected, lest it sets a wrong precedent.”
Indian jewellers have to pay 4.12 per cent on import of gold, apart from an octroi of 0.1 per cent if the jewellery is imported in Mumbai. Plus, the 2012-13 Budget has proposed a 0.3 per cent excise duty on jewellery. Then there is excise duty, which, when calculated with abatement, comes to 0.3 per cent.
Thailand is not a known jewellery producer. Hence, most of the imports taking place even today are from China and Malaysia, routed through Thailand.
Veteran bullion analyst Bhargav Vaidya says such a discrepancy in the import duty would eventually leave most Indian goldsmiths and workers jobless, most of them Bengalis. “Leave aside Thailand imports, if jewellers pay 4.12 per cent import duty on gold which is raw material and 0.3 per cent excise on jewellery which is finished product, jewellery manufacturing itself cannot remain viable,” he adds.
Another consultant to various gold importers says even if jewellery imported from Thailand is not finding buyers in India, melting that into gold and selling it in the domestic market will still make it viable.
On its part, the government today clarified that the actual duty on gold jewellery — branded and unbranded — will be one per cent on the 30 per cent of the value of transaction or invoice, effectively making it a 0.3 per cent levy. In effect, it will also benefit branded jewellery that was earlier chargeable to one per cent flat duty due to the new norm, according to the finance ministry. As for branded jewellery, it will be subject to only 0.3 per cent excise duty.
The Central Board of Excise and Customs (CBEC) said since gold jewellery is subject to value-added tax, the excise return is only of one page for them. That has be filed quarterly, and hence the question of inspector raj doesn’t arise, according to a CBEC note.
The excise is payable by the manufacturer and not goldsmiths who are doing it on job work assigned to them by the manufacturer and even small-scale exemption available to manufacturers significantly reduces burden of excise on jewellery. Traders, though, are not enthused by this late-evening clarification. They said they would open shops tomorrow, but their protest would continue.