India raises tax on gold, silver imports

India, the world's biggest consumer of bullion, increased import duties on gold and silver, potentially cooling demand from jewellery buyers and investors. The government began taxing gold bars and coins at an additional 2 per cent from yesterday, while silver attracts a 6 per cent levy, the finance ministry said on its website. Overseas purchases of gold were taxed at Rs300 (Dh21.74) per 10 grams and of silver at Rs1,500 a kilogram before yesterday. Imports Gold imports were already poised to drop 48 per cent in the first quarter as a decline in the rupee boosted prices and high borrowing costs cooled demand, Prithviraj Kothari, president of the Bombay Bullion Association, said on January 3. There won't be much impact on imports, he said yesterday. The higher taxes may help Prime Minister Manmohan Singh cut the fiscal deficit as slowing growth threatens to erode revenue. "The government increased the duty probably to collect more revenue," said Kothari by phone. "Prices will rise in the domestic market." Gold for delivery in February on the Multi Commodity Exchange of India jumped as much as 1.1 per cent to Rs27,778 per 10 grams yesterday. Futures gained 32 per cent last year after India's rupee slumped 16 per cent against the dollar. Purchases Gold importers pay about Rs540 per 10 grams as taxes from yesterday, Kothari said. India's gold imports dropped to 875-880 tonnes last year from 958 tonnes in 2010, while purchases may have fallen below 125 tonnes in three months ended on December 31 from 281 tonnes a year ago, according to the association. ‘Softening Demand' "We are already seeing softening of demand because of the high prices and this increase in duty will add to the pressure," Kishore Narne, head of research at AnandRathi Commodities Ltd., said by phone from Mumbai. "Higher tax will help the government increase its revenue collection. If imports fall, the trade deficit will narrow. Either way it is positive for the rupee." The rupee was Asia's worst performer last year, reaching a record low of 54.305 a dollar on Dec. 15. The Reserve Bank of India boosted borrowing costs 13 times since the start of 2010 to cool inflation. Eye on increased revenue -    Rs300: levy on overseas gold purchases until yesterday -    1.1%: rise in gold futures for February delivery