NEW DELHI—Indian Finance Minister Pranab Mukherjee removed, as expected, the excise tax on sales of all gold jewelry. The move likely will calm retailers who went on strike when the scope of the levy was widened in March.
The news could have been bullish for gold prices, as removing the excise tax is likely to revive demand in India, the world's largest consumer of the metal. Instead, gold futures in New York eased, as investors turned to cash after weekend elections in Greece and France cast doubt over efforts to mitigate the euro zone's sovereign-debt crisis.
Gold for May delivery lost $6.10, or 0.4%, to settle at $1,638.60 a troy ounce on the Comex division of the New York Mercantile Exchange.
George Gero, vice president of global futures at RBC Capital Markets, said India's decision to scrap the tax was too little too late, because the tax already had hurt demand.
"It's trying to undo the damage and get [sales] back to normal," he said, referring to a 20-day industry strike in reaction to the levy. The strike ended after Mr. Mukherjee promised to look into scrapping the new tax.
In the federal budget on March 16, Mr. Mukherjee imposed a 0.3% excise tax on nonbranded gold jewelry. Branded-jewelry sales by companies already had a 1% tax. Both levies have been scrapped, Mr. Mukherjee said in Parliament Monday as he unveiled amendments to budgetary proposals.
On Monday, Mr. Mukherjee also raised the threshold limit for taxation on cash purchases of gold jewelry to 500,000 rupees ($9,350) from the budgetary proposal of 200,000 rupees. However, he left unchanged a proposal to double the import tax on gold to 4% from 2%. The budgetary measures were aimed at increasing the cost of gold purchases and curbing its consumption. Gold is India's second-largest import item by value after crude oil.
But the tax rollbacks could revive the precious metal's demand in India, partially defeating its objective of attacking a widening current account deficit, a measure of a nation's indebtedness to foreign creditors.
"Gold demand will likely improve. It's [scrapping the excise tax] a good decision," said Prithviraj Kothari, president of the Bombay Bullion Association. Jewelers were most worried about the excise tax as they said it required far more paperwork.
Madan Sabnavis, chief economist at CARE Ratings, said the scrapping of the tax would just about offset the impact of the weakening rupee that has pushed up domestic prices.
Earlier Monday, Mr. Kothari said gold demand in Mumbai, the country's trading hub for precious metals, had plummeted to 200-300 kilograms a day, compared with 1-1.5 metric tons a day last year, largely because of the impact of the sliding rupee.
Source : online.wsj.com