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« Customs and Excise »
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RBI panel for higher customs duty on gold
January, 03rd 2013

A RBI panel on Wednesday suggested host of measures, including introduction of tax sops for instruments used to impound idle gold , and higher customs duty to discourage import of the precious metal.

The RBI draft report also favours imposing value and volume limits on import of gold by banks and other agencies.

Noting that large gold imports are adversely impacting the Current Account Deficit (CAD), the report said there is a need to moderate the demand for gold imports, as ensuring external sector's stability is critical.

"Fiscal measures to reduce the gold imports may be revisited," said a report of the Working Group on Gold.

It also said banks need to design innovative financial instruments that can provide real returns to investors.

Recommending "introduction of tax incentives on instruments that can impound idle gold may be considered," the report said that there is a need to convert both rural and urban demand for gold into investment in gold-backed financial instruments through dematerialisation of gold.

"Limits on the volume and value of gold to be imported by banks may be considered, if required under extreme situation" is also one the recommendations in the draft report, on which comments can be given till January 18.

The report has concluded that gold loans have a causal impact on gold imports substantiating the emergence of a liquidity motive for holding gold. Also, international gold prices and exchange rate "significantly and positively" affect the gold prices in India.

It further said going by the past trends, "sharp sudden drop in gold price by 30 to 40 per cent is a remote possibility causing financial distress to gold loan NBFCs".

Gold import is a major constituent of India's rising Current Account Deficit (CAD). The CAD widened to a record high of 5.4 per cent of GDP, or $22.3 billion, in the July-September quarter.

Earlier in the day, Finance Minister P Chidambaram said government is considering steps to make import of the precious metal more expensive.

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