Budget 2023: How will increase in custom duty on gold and silver impact commodity market?

While presenting the Union Budget on Wednesday, Finance Minister Nirmala Sitharaman announced a hike in basic customs duty on articles made from gold bars.

“Customs duties on dore and bars of gold and platinum were increased earlier this fiscal. I now propose to increase the duties on articles made therefrom to enhance the duty differential. I also propose to increase the import duty on silver dore, bars and articles to align them with that on gold and platinum," said Sitharaman in her Budget speech. Impact of this announcement has led to a spike in the price of gold and silver in the commodity market. Gold futures were trading 1.23 per cent up at Rs 57,190 per 10 gm while silver futures were trading 1.55 per cent higher at Rs 68,829 per kg at MCX.

Ravindra V Rao, VP and Head Commodity Research at Kotak Securities, said: “Union Budget 2023 held very few surprises for the commodity industry. Precious metals witnessed some structural duty changes as import duty on silver dore, bars and articles were increased to align them with that on gold and platinum. Existing incidence of import duty on dore and bar of gold and platinum is maintained after being enhanced in June and October 2022 respectively though the Basic customs duty (BCD) rate and agriculture infrastructure and development cess (AIDC) rates have been recalibrated. BCD on gold bars, Gold dore and platinum, all have been reduced to 10% from 12.5%, 11.85% and12.5% respectively. While AIDC has been revised to maintain the total duty as earlier. Markets were expecting a cut in gold import duty in order to support domestic gems and jewellery industry but fears of a wider current account deficit, as indicated in economic survey, may have prompted the authorities to stay put.”

On the other hand, import duty on silver bar and silver dore has been increased from 7.5% and 6.1% To 10%. Also, AIDC on bar and dore has been raised to 5% and 4.35% while Social Welfare Surcharge (SWS) has been completely waived off, pushing the total duty to 15% and 14.35% respectively, like in case of gold. Additionally, to help further gold monetisation, it was proposed that the conversion of physical gold to e-gold receipt and vice versa won’t attract any capital gains as it will not be treated as a transfer. The aim is to promote investments in electronic equivalent of gold.

Base metals' prices did not see any changes while market expectations of reduction in GST on raw materials like cement and steel were also not met. However, government supported the steel industry by maintaining exemption from basic customs duty on raw materials for manufacture of cargo steel, ferrous scrap and nickel cathode in order to facilitate availability of raw materials for the steel sector. Similarly, the concessional BCD of 2.5 per cent on copper scrap is also being continued to ensure the availability of raw materials for secondary copper producers who are mainly in the MSME sector.

Also Read: Union Budget 2023: Income Tax changes to cost govt Rs 35,000 crore annually