GST woes: India's gold imports to fall in H2; smuggling seen rising, says WGC

There have been fears the tax increase could stoke under-the-counter buying in India

India's gold imports will likely drop in the second-half of the year from the first six months after jewellers rushed to stock up ahead of new taxes introduced on July 1, the World Gold Council (WGC) said on Thursday.

Faltering appetite in a country where gold is used in everything from investment to wedding gifts could rein in a rally in global prices, trading near their highest level in seven weeks. (economy policy)

"Expecting higher (taxes), certainly some of the imports and some of the demand from the second-half were advanced in the June quarter," Somasundaram PR, Managing Director of WGC's India operations, told Reuters.

As part of a new nationwide sales tax regime introduced in July, the goods and services tax (GST) on gold jumped to 3 percent from 1.2 percent previously. Jewellers have to pay that tax when buying gold imported by banks, while their customers must also pay when making purchases.

India is the world's No.2 gold consumer. The country's demand for the metal in the first-half rose 30 percent from a year ago to 298.4 tonnes, but imports during the period more than doubled to 518.6 tonnes, the WGC said in a report published on Thursday.

India's gold imports typically strengthen in the second-half of the year as the precious metal is considered an auspicious gift at festivals such as Diwali and Dussehra.

Indian gold demand is expected to remain subdued for a few weeks as "consumers who have recently purchased are unlikely to do so again in the short term", the WGC said.

There have been fears the tax increase could stoke under-the-counter buying in India, where millions of people store chunks of their wealth in bullion and jewellery.

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