Budget 2019 has resulted in expected spurt in the prices of precious metal
The proposal to hike import duty on gold by 2.5% by the Union Finance Minister, Nirmala Sitharaman in her maiden budget has come as a shocker to the bullion market and has resulted in expected spurt in the prices of precious metal. This proposal will not only see gold prices firming up in the domestic bullion market but will also see activities picking up in the smuggled market, affecting the treasury to suffer loss in revenue, dealers and traders said.
Commenting on the development, Pritam Kumar Patnaik, Head Commodities, Reliance Securities, said, “The hike in import duties was unexpected, as market was expecting a reduction in import duties. While gold prices have touched new highs with Gold MCX August 2019 futures contract scaling beyond Rs 35,000 per 10 gram, We see physical demand for gold coming down due to high prices. However, price of gold will continue to remain firm.”
Hareesh V, Head, Commodity Research at Geojit Financial Services said, "The proposal to increase the custom duty on gold and precious metals will certainly lift gold prices in the country. Since the domestic prices are already at multi-year highs due to a weak rupee and higher international prices, the new decision to revise the import duty on gold to 12.5% from the current 10% would cause an additional burden on buyers. In addition, gold prices attract GST of 3%. Hence the present total tax incidence on gold would be about 15.5% this will lead to higher prices for gold in the country”.
After the budget proposal, the most active August Gold Futures in MCX platform increased by more than 2% to Rs 34,968 per 10 grams. It made an intra-day high of Rs 35,100. Meanwhile, gold prices in the international market held steady at $1417 an ounce. Earlier, industry bodies expected a duty cut as higher tax structure had an impact on sales, he said.
While giving his reaction on the decision to hike duty, Arvind Sahay, Chairperson at IGPC IIM-A said, "Hike in custom duty for gold is not a good decision for the consumption of the precious metal. It will lead to an increase in smuggling. The increase in smuggling will, to some extent, be mitigated by the new TDS of 2% on cash withdrawals of more than Rs.1 crore. Overall, as far as gold is concerned nothing much will change on a materially large scale basis.... ceteris paribus".