The Indian government has raised import taxes on gold for the fourth time in a year, to a staggering 10%. This is the third time since January that the import tariffs on gold have been increased by 2%, in a desperate attempt to cure the citizens of their appetite for gold. Only 6% of India’s rural population of over 856 million people have access to a bank at all. Buying gold is the only savings option that they have besides cash, which is unattractive in a nation where inflation hovers near 10%.
When the Indian government hiked import fees to 8%, and all but cut off gold imports, the supply of gold vanished. This has led Indians to start buying silver, but the government plugged that hole today, as well as platinum and unprocessed precious metals. Here is a chart explaining today’s changes:
Gold & Platinum
Refined Gold Excise Tax
Refined Silver Excise Tax
(chart edited to correct silver import fees)
The Indian government also announced new import restrictions on silver.
Analysts are predicting a good harvest season in India, due to a favorable monsoon season. This will mean demand for gold could possibly exceed last year’s. Some experts believe that the new taxes will not dampen gold demand too much, as global prices have fallen from the levels seen in the 2012 fall festival season. Most agree, however, that the rampant smuggling occurring will only get worse, as the government has just given the criminals another 2% profit over legitimate channels.
Gold seizures are up nearly 700% from before the import tariffs were 2%, and the majority of those seizures are only because of tipoffs to authorities. Smuggling is such an epidemic now, that India’s neighbors are suffering. Pakistan announced a total ban on gold imports for use in jewelry for the month of August, as “zero import tariff” incentives meant to encourage Pakistani jewelry exports were being subverted to the tune of tons a month, and the gold diverted into India. Nepal is also suffering from unprecedented gold smuggling crossing their territory from China, bound for India, and over 1000 illegal gold bricks were found on an arriving airliner in Bangladesh.
“We have already seen in past that we have not been able to reduce imports despite increasing duty. So by increasing the duty we are inviting more and more smugglers and antisocial elements into the trade,” said Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation.