India’s new taxes on gold & other precious metals

In response to concern over the impact of imports of gold (up from $42B in 2010–11 to $58B in 2011–12 or about 967 tonnes), the Government of India put up the tax on gold bars & coins & platinum to 4%, up from 2% set in January.

It also imposed an import duty on so-called non-standard gold doubled to 10% with the levy on ore also doubling to 2%. And the excise tax on refined gold also doubled to 3% with an excise duty of 1% levied on non-branded gold jewellery

In declaring that large imports of gold are a “problem” overlooks the fact that other government polices are behind much of the motivation of Indians to hold gold.

As it is, the irresponsible monetary & fiscal policies that push up consumer prices encourage more purchases of gold as a hedge against loss of purchasing power of the rupee. Indeed, for many Indians having a “hoard” of gold may be their only or best option for saving and investment due to the fact that regulations cause financial services to be under-developed.

In all events, taxing gold is symptomatic of the venality of public-sector officials combined with an insensitivity towards Indian culture. Gold has many uses in the daily lives of most Indians that wear bangles, rely on its use in medicine or in gifting or to use in ceremonies.

As always with policy, devils reside it some of the details. For example, granting an exemption for the additional tax for branded jewellery has a regressive impact inasmuch as the well-heeled that are more likely to purchase branded jewellery. (It may also undermine virility among India men as gold has been found to have positive therapeutic effects in treating male infertility!)

And the requirement that jewellers deduct 1% for purchases above Rs. 2,00,000 turns them into “tax farmers” for the revenue department without compensation for such service.

Ironically, some have claimed that objections to this levy should be muted since it is small and will have no major impact on consumption. But if this is the case, then why impose a tax that does not accomplish its intended goal of lower imports of gold and confirms!?!

In turn, this is nothing more than a venal and desperate grab for more revenues.