The Centre could lose a staggering $3 billion in revenues over a five-year period on account of differential import duties levied on refined and unrefined gold, says a report.
The estimate is part of the report prepared by global consultancy PwC. Currently, the import duty on refined gold is 10.30% while that on unrefined or dore gold is 8.24%.
Going by the report, the current 2.06% duty differential — representing $ 25.75/oz — is significantly higher than the refining cost.
"The five-year average potential impact of the current policy could result in up to $3 billion in tax revenues being lost to the government of India," the report said.
This long-term modelling is based on assumption that average gold spot price is $1,400 per ounce (oz). "The current duty differential between the import duty rate on refined gold and unrefined gold dore results in a duty revenue loss for the government of India," it said.
Under the current tax regime, the government is losing approximately (R560 crore) in duty revenue for every 100 tonnes of dore gold refined in the country.
PwC was engaged by Australian investor relations firm Cannings Purple to analyse whether there is any evidence, based on publicly available information, to support the economic effectiveness of the import duty differential between refined and unrefined gold dore.
Last fiscal, India imported about 825 tonnes of gold. "If all of this had been imported in the form of unrefined gold dore it would represent foregone duty revenue of approximately $770.4 million (R463 crore)," the report said.
The demand for gold fell sharply last fiscal after the government increased duty rates and taxes to stimulate India's local gold refineries, contain a record current-account deficit and stymie slide of the domestic currency.
Last financial year, the government hiked import duties on refined gold four times. "This followed a move in 2012 to create a 2% differential between the import duty rate for refined gold and unrefined gold dore in order to promote the gold dore refining industry within India," the report noted.
Noting that tariffs and duties have been a protective feature of taxation regimes for a significant period of time, the report said they are economically distortive.
"It is generally accepted that economic inefficiencies will arise when different tariffs are imposed on different types of goods. A tariff differential can create a 'dead weight loss' because the cost to administer the different rates is