Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
Economy

RBI Reverses Gold Restrictions, But Smuggling Still Lucrative With 10% Duty

RBI has reversed all restrictions on gold imports. This supposedly has come from the government. It’s a very good decision, because such import restrictions are arbitrary and temporary and invite smugglers. Recently there was even an all-women gang that smuggled in crores of the stuff, and at Capital Mind we’ve even made noted of the innovative techniques of those who were caught.

The old 80:20 scheme was that if you imported 100 kg of gold, you had to first export 20 worth of it and only then import the next consignment. Obviously this is a little silly, because if I want 100, I’ll just import 125, give back 20% to the same guy and use my 100.

Other restrictions involved who could import and how much, and who got to use gold first. Again, this was unnecessary.

Finally, the main problem with gold is the 10% duty. The 10% duty will still attract smugglers – even at Rs. 2,500 per gram, the per Kg cost is 25 lakh and the duty is 2.5 lakh, and that is enough incentive for smuggling. If the government really wants to curb smuggling it has to bring import duties back down to 1% or 2%.

But, at a time when tax revenues are low, will the government let go of all that indirect tax?

divider

Subscribe to Capital Mind:

To subscribe to new posts by email, once a day, delivered to your Inbox:

 

Also, do check out Capital Mind Premium, where we provide high
quality analysis on macro, fixed income and stocks. Also see our
portfolio which has given stellar returns in our year, trade by trade
as we progress. Take a 30-day trial:

  • Dhadiga says:

    Some how an import duty is making gold costlier to consumer and the smuggling is making the networked jeweler rich ditching the government something similar was happening with domestic gas…
    The two main purpose of this is to reduce the consumption and also the tax revenue, right!
    Then what modi can make is, reduce the entire import duty on gold and impose same 10% as end user tax i way that 10% is charged only on gold rate not on any value addition, this will not rise the cost of any jewelry or physical investments…
    but the fact is, it depend on how cooperative the smuggling lobbyist are with the gov it self!