It could easily be billed as a classic case of killing two birds with just one stone. Through an executive fiat over the weekend, New Delhi said that star export houses can import gold only for personal use — manufacturing and exporting.
The order puts an end to the misuse of free trade agreements (FTAs) and Comprehensive Economic Partnership Agreements (CEPA) by bullion dealers after the implementation of the Goods and Services Tax (GST).
The circular also ensures that imports would flow largely through nominated agencies such as banks and refiners, making the market more transparent, and ensuring that the government does not lose out on revenue. "....The import of gold by four-star and five-star houses with existing nominated agency certificate is subjected to actual user condition and are permitted to import gold as input only for the purpose of manufacture and export by themselves during the remaining validity period of the nominated agency certificate (sic)," said the Commerce Ministry note dated October 18.
A few bullion dealers exploited the tax loophole after GST, which amalgamated excise and VAT, kicked in from July 1. Prior to this date, the government imposed central excise of 12 per cent on gold imports from any country with which India had signed an FTA or CEPA, which in turn facilitated import at nominal or zero rate.
This along with 1 per cent VAT on gold sale levelled the playing field with those importing from banks, which had to pay 10 per cent customs duty plus 1 per cent VAT on sale. However, with 3 per cent GST fixed on gold, the offsetting Cenvat stood withdrawn, allowing export houses to import at 3 per cent and sell gold at a discount to bank rate in the domestic market.
While importing through banks cost 13 per cent (10 per cent duty plus 3 per cent GST) plus premium, those opting to buy from export houses could get the metal at a discount. Also, importers made windfall at the expense of 10 per cent duty forgone.
Chirag Sheth, senior precious metals analyst with Metals Focus, a data miner for the World Gold Council, estimates that 30 tonnes of gold in the form of coins were imported since July by certain dealers from South Korea that has a CEPA with India.
While gold imports at zero-duty from South Korea were banned by the government in August, backof-the-envelope calculations show that New Delhi might have lost Rs 900 crore worth of duty through such imports.
"This will put an end to the misuse of FTAs and give banks and refiners more sway over gold imports into the country," said the head of the bullion desk at a Mumbai bank. James Jose, MD, CMG Metalloys, a Kerala-based gold refiner, welcomed the government’s decision. Besides preventing the "treaty abuse by a few", it would enhance government revenues, he said.
Source : The Economic Times