The Indian Government has increased the customs duty on gold alloys imported under the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE). This move aims to address a loophole exploited by bullion dealers, resulting in market distortions and revenue losses for the government.
Details of the Duty Increase
A recent Gazette notification revealed the customs duty on gold alloys has been raised to 3.6 percent from the previous 0.5 percent. Additionally, the Agriculture Infrastructure and Development Cess has been set at 1.4 percent. This adjustment follows a sharp increase in platinum imports during a four-week period from mid-June, which exceeded the total imports for the entire year of 2023.
Impact on Bullion Trade
Bullion traders view this duty increase as a potential precursor to further revisions in the CEPA duty structure with the UAE. The previous cost benefits of importing gold as a platinum alloy are likely to diminish due to higher production costs.
Surge in Imports
According to Reuters, bullion dealers imported 13 tonnes of gold alloy metals valued at $1 billion during the mid-June period, compared to a total of 9.97 tonnes imported throughout 2023. CEPA’s provision of lower duties on value-added products had been used by traders in Dubai to mix platinum and copper into gold bars, thus benefiting from reduced duties. Alloys containing 2 percent or more of platinum by weight were classified as platinum alloys, despite being predominantly gold. This classification allowed importers to avoid the higher 15 percent customs duty on gold, paying only 5 percent on platinum alloys instead.
Market Distortion and Government Revenue
The reduced duties on these “platinum alloys” enabled importers to sell refined gold at a lower price, undercutting those importing gold through standard routes. This practice caused revenue losses for the government and led to price distortions in the domestic market.
Implications for the Jewellery Industry
For jewellers, these changes indicate a shift in the cost structure of imported gold alloys, likely affecting pricing and supply chain strategies. Increased duties may lead to higher raw material costs, influencing retail jewellery prices. The government’s efforts to close such loopholes could create fairer competition within the industry. Jewellers should monitor potential future revisions to the duty structure under CEPA and adjust their strategies accordingly.
