Businessmen Demand Increase in Gold Import Duty to Curb Smuggling

Kathmandu. Businessmen who were constantly pressuring the government to reduce the customs duty on gold, citing increased smuggling and decreased trade some time ago, are now engaged in exactly the opposite 'lobbying'. The businessmen who protested for months when the government increased the customs duty on gold through the budget for the financial year 2081/082 are now pressuring the government to increase the customs duty.

When the government increased the customs duty on gold to 20 percent and on silver to 15 percent through the budget for the financial year 2081/082, gold businessmen protested. They postponed their protest after the customs duty on gold and silver was fixed at 10 percent as per the decision of the Council of Ministers meeting on November 21, 2081.

The same businessmen are now demanding that the government increase the customs duty on gold. The attitude of Nepali businessmen has changed after neighboring country India significantly increased the customs duty on gold.

India on Tuesday alone increased the customs duty on import of gold and silver from 6 percent to 15 percent. Nepali businessmen have put forward the demand that Nepal's customs duty should also be made higher compared to India, citing that India's move will increase gold smuggling into Nepal and put pressure on foreign exchange reserves.

India's Strategy to Reduce Trade Deficit

India, the world's second-largest gold consumer, imports about 99 percent of its gold from abroad. The Indian government has increased the customs duty on gold to prevent further decline in the ever-increasing trade deficit and the weakening Indian Rupee (INR).

Under the new system, India has implemented a 10 percent basic customs duty and a 5 percent Agriculture Infrastructure and Development Cess. Thus, the total effective tax has reached 15 percent. Earlier, the tax was reduced to 6 percent around mid-2024.

Gold alone accounts for 9 percent of India's total import expenditure, which India believes will provide significant relief to its foreign exchange reserves by reducing gold imports.

In this context, Indian Prime Minister Narendra Modi has also publicly appealed to the countrymen not to buy gold for one year. He urged not to buy gold jewelry for weddings or other ceremonies at home, stating that saving foreign exchange is patriotism.

Following Modi's appeal, the share prices of major jewelry companies in India, Titan, Kalyan Jewellers, and Senco Gold, have fallen by up to 10 percent.

Demand to Immediately Increase Customs Duty in Nepal

With the increase in customs duty in India, a demand has arisen to review the customs duty in Nepal immediately. Currently, the customs duty on gold in Nepal is 10 percent, while India has increased it to 15 percent. Stakeholders say that a price difference of 5 percent between the two countries provides a great incentive for illegal gold smuggling from Nepal to India.

Arjun Rasaili, Chairman of the Federation of Nepal Gold and Silver Dealers Association, said that Nepal should adopt a similar policy after India's policy change. The Federation has already suggested to the government to set the customs duty at least 1 percent higher than India's for the upcoming budget on Jestha 15.

Chairman Rasaili said, 'Because of the open border between Nepal and India, if customs duty is cheaper here, there is a risk of gold bought with Nepal's dollars being smuggled to India. To prevent smuggling, our demand is to have the same or 1 percent higher customs duty than India (around 16 percent).'

Gold is mainly imported into Nepal from countries like Dubai, Congo, Hong Kong, and Singapore. Since India also imports gold from the same countries, businessmen are concerned that if the price difference between the two countries is not aligned, illegal trade will flourish.

'When it Rains in India, We Have to Hold an Umbrella in Nepal'

Manikratna Shakya, former chairman of the Federation, also warned that India's policy change would have a direct impact on the Nepali market and increase the risk of smuggling. He suggested that Nepal should increase the customs duty on gold to around 16 percent.

Shakya said, 'It's like when it rains in India, we have to hold an umbrella in Nepal. After India increased the customs duty, Nepal should also review and adjust it immediately. Otherwise, there is a possibility of gold smuggling from Nepal to India.'

According to Shakya, attention should also be paid to the fact that increasing the customs duty will make gold more expensive in the Nepali market and may reduce the purchasing power of consumers. However, he argues that this step should be taken keeping in mind the control of smuggling and the sensitivity of the economy.

Demand to Increase Quota, But Market is Slow

Chairman Rasaili also informed that a demand has been made to increase the daily import quota of gold to 40 kg in the upcoming budget. Currently, Nepal Rastra Bank allows the import of 25 kg of gold daily. Businessmen have demanded to increase the daily quota by setting an annual ceiling so that they can order gold as needed during the season.

Currently, the business is very slow due to the excessively high price of gold in the market. 'There is no business in the market right now, so even though the quota is 25 kg, only about 10-15 kg of gold is being imported daily,' Rasaili added.

According to businessmen, there is not much gold stock in the banks currently, and imports have decreased due to lack of demand in the market.

Ministry of Finance's Homework

As soon as signs of increased illegal gold trade at Nepal's airports and border crossings appeared after gold became expensive in India, the Ministry of Finance of Nepal has started internal discussions and homework. According to ministry officials, the price difference with India gives smugglers a large profit opportunity, so policy changes are necessary to address this.

According to a high-ranking official of the Ministry of Finance, 'Gold became expensive after the customs duty increased there (in India). Since the rate is lower here, there is a possibility of gold going illegally from here to there. We have started homework on this, but we cannot say for sure what we will do at this moment.'

He also said that businessmen are also informing them that the customs duty needs to be adjusted.

The official added that in the context of the increasing trend of raw gold entering Nepal in the name of ornaments like rings and bangles brought by passengers through airport customs, and sending it to the market illegally, India's new policy has created additional pressure.