Yearly duty cut in silver, platinum to zero in 6 years under CEPA needs relook

Chennai: The government is projected to lose Rs 28,000 crore in revenue with the duty reduction on precious metals. The yearly duty reduction in silver and platinum to zero per cent in seven years under CEPA might disrupt the trade dynamics and the government will have to renegotiate the terms of the agreement.

As per the projection of GTRI, the government may lose Rs 28,000 crore annually in revenue due to the duty reduction in gold and silver from 15 per cent to 6 per cent. This calculation is based on FY 2024 import levels, where India imported gold worth $45.54 billion and silver worth $5.44 billion, and exported jewellery worth $13.23 billion.

Under India-UAE CEPA, 200 MT, or a quarter of India’s annual imports of gold, was allowed at 1 per cent concessional tariff and the rate will come down to 5 per cent.

However, gold was also imported under CEPA as a platinum compound at 5 per cent tariff, with the benefit of a 10 per cent duty arbitrage. In the platinum compound, gold can be around 85 per cent, and platinum can be 5 to 6 per cent. With the duty cut, this arbitrage drops from 10 per cent to 1 per cent and this route of import will become unviable due to segregation expenses. Similarly, silver was being imported at 8 per cent tariff with a 7 per cent duty arbitrage under CEPA. Now, the arbitrage drops to zero.

India-UAE CEPA also allows unlimited imports of silver and platinum from the UAE into India with one per cent duty reduction every year. After the duty cut, zero per cent duty will be applicable after six years against 15 years earlier. This would lead to significant annual revenue losses and import business moving from banks to a few private traders.

The government will have to renegotiate CEPA on this yearly duty reduction to safeguard its economic interests. The industry hopes that the government will take up this issue in its annual review of CEPA this year.