India’s Finance Minister Nirmala Sitharaman last week proposed an increase in import duty on gold and other precious metal to 12.5 per cent, from 10 per cent, sharply increasing the gold prices in India.
Industry experts believe that the additional import duty on gold will hurt domestic gold and jewellery demand in India and encourage buyers to purchase the precious metal from the GCC countries. While the new duty structure is seen to affect the Indian jewellery industry negatively, the jewellery business in the neighbouring GCC markets will benefit out of this duty hike.
“Even the most popular designs and articrafts of India will be much cheaper in the UAE, other GCC states, Singapore and Malaysia,” Abdul Salam KP, group executive director of Malabar Group said.
Earlier the GCC markets were dependent on gold imports from India, whereas most of these markets have developed with manufacturing facilities. As the machinery and manpower are available from various parts of the world, jewellery manufacturing is growing in the GCC markets. Customers from the Indian subcontinent, especially from India, are taking advantage of this price benefit and increasingly buying gold from the GCC countries.
“With the revised duty structure, Indian customers will benefit more than R400 per gram on gold purchases from the GCC countries. This will definitely encourage bulk buyers, especially on wedding related purchases, to visit Dubai, Muscat or any of the GCC markets. If a family of four visit and bring back ornaments within the reasonably allowed quantity, they can cover their trip cost easily. They have additional benefit of much wider choice from international designs of jewellery,” Abdul Salam said.
He said the current gold price difference [between India and the GCC] is mostly on the account of 12.5 per cent custom duty and 3-4 per cent other taxes. “Whereas in the GCC countries, gold bullion is zero rated, and the goods and services tax charged in many countries are refunded to the tourists, thus practically there is no duty or tax on the purchases made by them in the GCC.”
“The price advantage of 10–12.5 per cent along with the VAT refund for the tourists, will lead the non-resident Indians (NRIs) and tourists to buy gold from this part of the world,” Abdul Salam added.
According to him, the increase in import duty from 10 to 12.5 per cent may affect the import of jewellery from different parts of the world into India. This will affect availability of internationally designed and manufactured jewellery in the Indian market and customers will therefore find a much larger array of designs and jewellery in the GCC, Singapore and Malaysia.