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Gold traders find another route to offset duty.

Date: 01-11-2017
Subject: Gold traders find another route to offset duty
New Delhi may have recently plugged the loophole that had allowed star exporters to import gold articles from South Korea and Indonesia at zero duty and make windfall gains by selling them locally, baking in the 10 per cent levy on the metal. 

But smart importers are using another legal route ­ special-incentive duty-credit scrips bought at discounts from nominated agencies and exporters ­ to partly offset the duty and earn fatter margins. 

As part of the foreign trade policy, India issues such scrips to merchandise exporters and these instruments are linked to their turnovers. The scrips enable exporters to offset duty to the extent of the face value of the instruments. 

Besides setting off their own duty liabilities, exporters can also sell the scrips to importers. When there is a surfeit of such scrips, they are sold at a discount. 

Some importers buying these scrips had exploited a loophole in the comprehensive economic partnership agreement (CEPA) between India and South Korea for around two months through August after the imposition of the 3 per cent goods and services tax (GST) on gold imports. 

Since GST subsumed excise and VAT, the 12 per cent Cenvat for importers effectively became just 3 per cent IGST overnight from July 1, as the import liability is zero for shipments from countries with which India has a free trade agreement (FTA) or CEPA. These traders made massive gains, while the government lost import duty revenues. 

Recently, an executive fiat stripped the export houses off the nominated agency status, and allowed them to import gold only for manufacturing and exporting for themselves.The FTACEPA loophole was thus plugged. 

Now, these star export houses are approaching nominated agencies and exporters for the discounted duty scrips. They save on the duty to the extent of the discount paid to exporters. Some trade officials say the discount is around 2.5-3 per cent to the scrip's face value. 

“Certain constituents in the gold trade are aware that exporters are willing to sell the duty credit scrips at a 2.5-3 per cent discount and are queueing up for them to partly offset the import duty, thereby improving their margins,“ said Rajesh Khosla, a consultant to state-run trader MMTCBSE 3.79 %. 

Another trade source said that exporters with in-house gold refineries were buying the discounted instruments. 

"They (the refiners) import dore or raw gold at around 9.35 per cent in the domestic tariff area. Assume they get the scrip at a 2.5 per cent discount. Their margins could swell by that extent," he said. 

Some nominated banks that import gold on consignment basis are exploring the applicability of such duty credit scrips. They need clarification from regulators such as the central bank and the Directorate General of Foreign Trade before purchasing them.

Source: economictimes.indiatimes.com

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