Mumbai: The cut in customs duty on gold to 7.5 per cent in the Union Budget 2021-22 is likely to reduce the grey market as recovering demand may allow official imports to gain strength, according to a report by the World Gold Council (WGC).
The lower customs duty is expected to reduce gold smuggling, the WGC 'Union Budget impact on Indian gold market' report said.
It added that the unofficial imports fell a whopping 80 per cent to 20-25 tonnes in 2020, due to logistical disruptions caused by COVID-19. It may be further impacted in 2021 with ongoing flight restrictions and lower customs duty, the report said.
Lower customs duty and recovering demand may allow official imports to gain strength at the cost of unofficial imports, although the 14.07 per cent duty continues to make the grey market attractive.
The new tax structure brings the total import duty on a gold bar, including the basic customs duty (BCD), agriculture and infrastructure cess (AIDC) and Social Welfare Surcharge (SWS), to 10.75 per cent, compared with 12.87 per cent before the Budget.
With an additional 3 per cent goods and services tax (GST), consumers will now be expected to pay 14.07 per cent tax on gold bars as compared with 16.26 per cent earlier, a net tax reduction of 2.19 per cent post budget.
Similarly, the total post-Budget import duty on gold dor (including BCD, AIDC and SWS) stands at 10.09 per cent as compared with the 12.21 per cent pre-Budget level.
However, it stated that in a year when unemployment and loss of livelihoods have been a reality, the support ecosystem around tax avoidance is likely to be even stronger.