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India's New Jewelry Tax Poses Major Threat To Gold Market, Sparks Protest From Jewellers

March 18
5:37 AM 2016

About three weeks ago, India's Finance Minister Arun Jaitley announced that the government will add a sales tax of 1 percent to gold jewelry sold in India. The new tax regulation has caused imports to fall as demands drop significantly.

The regulation was announced along with the Finance Ministry's presentation of the country's annual budget for the 2016-17 fiscal year. The budget shows the government's gold plan as the excise duty planned by the government while the 10 percent import taxes of gold jewelry remain unchanged this year. However, Minister Jaitley unveiled that he plans to raise imports taxes on dore gold bars from 8 percent to 8.75 percent. 

India's officials revealed that such sales tax are applied to reduce gold consumption in the country. Second only to China, India's gold market is one of the largest in the world. However, the demands have been slow since the new 1 percent sales tax regulation.

On the other hand, Indians have been expecting that the government would cut the 10 percent import duty on gold jewelry. When it didn't happen, added with the new sales tax, has hit the Indian gold market significantly. Oilprice noted that the decision from the jewelry federation could cut demand by up to 300 tonnes, or 9.65 million ounces annually, and considering the size of the gold market in India, that figure would equate to 7.1 percent of total global demand from 2015. Some considered the regulatory move as "one of the biggest threats the gold market has seen in years".

According to Yahoo Finance, so far gold prices have held up, supported by dovish monetary policy by the US Federal Reserve and other major central banks. In February, gold prices hit their highest level since the beginning of 2015. However, after the Federal Open Market Committee (FOMC) meeting at Wednesday, gold was back at $1260 per ounce.

As for now, three weeks after the initial announcement of tax sales regulation, jewellers have been striking against it, as reported by DiamondWorld. In addition to closing their stores across India, jewellers will also organize a protest rally of 1.5 km in a mega strike called "Maha rally of all India Jewellers", demanding the government to change the regulations back.

India's new jewelry tax regulation that requires an additional tax on sales of 1 percent has hit the gold market in India. Demands have slumped significantly as jewellers carry out protests for the government to reverse the tax sales regulation. 

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