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Kathmandu, July 10. Indian Finance Minister Nirmala Sitharaman cut customs duties on gold and silver in her 2024/25 budget speech.
India set the gold tariff at 6% through the budget, from 15% previously. According to Indian media reports, the price of gold fell by 4,000 rupees per 10 grams after the tariff reduction.
But Nepal increased the gold customs duty from 15% to 20% through the budget introduced on May 15. Due to the budget, gold price in Nepali market is more expensive than that in India. After the reduction of customs duty, gold price in Indian market has become cheaper.
The average price of 24-carat gold in the Indian market was 69,600 baht, or 111,360 rupees, per 10 grams on Wednesday. Different states in India have different prices.
But on this day, the price of the same quality and quantity in the Nepali market was set at Rs 26,370 for every Rs 100,000. In other words, the price of gold in the Indian and Nepali retail markets has reached a difference of Rs 15,000 per 10 grams. In Nepal, gold is usually measured in tolas. One tola is equal to 11.66 grams.
“Gold is now at least Rs 15,000 per tola more expensive in Nepal,” said Dharmasundar Bajracharya, first vice-president of the Nepal Gold and Silver Traders Federation. Traders complain that the risk of smuggling has increased as gold prices in the Nepali market are much higher than those in the Indian retail market.
In the past few years, smuggled gold from other countries including China used to enter Nepal through Nepal and then enter India where the border is open. Bajracharya said that now that the gold price in Nepal has increased, gold may be easily smuggled even from India to Nepal.
“Now there is a risk of gold being easily smuggled from India to Nepal due to the open border,” he said.
The country loses a lot of revenue when legal gold imports fall, and business people say the government’s budgetary increase in tariffs, aimed at raising revenue, risks having the opposite effect.
The traders said that currently the government levies a 20% duty on gold imports, which costs about Rs 25,000 per tola. But when illegal imports start to increase, legal imports will decrease and revenue will be directly affected. Not only that, when traders trade in illegal gold, the government also loses income tax.
Mani Ratna Shakya, former president of the federation, said that if the government does not review the tariffs immediately, it will cause big problems for Nepal’s gold and silver market. “Because the profits are high, merchants themselves can engage in gold smuggling business, and locals in border areas can turn to gold smuggling after seeing the profits,” he said. As long as the gold smuggled from other countries, including China, is consumed, the risk of it being used here instead of flowing to India will increase.
Data from the customs department shows that the amount of gold legally imported is also decreasing. According to the department, a total of 2,651 kg of gold was imported in the 2080/81 fiscal year.
In the previous fiscal year 2079/80, 2,000,916 kg of gold was legally imported. In fiscal year 2078/79, 5,533 kg of gold was imported. Businessmen said that the main reason for the halving of legal gold imports in three years was the increase in customs duties through the annual budget.
“We have to understand that the decline in imports is not just due to a decline in gold consumption in Nepal, but rather an increase in consumption after illegal gold started meeting the demand,” Shakya said.
Last year, the government also raised the duty on gold from 10% to 15%, while in the previous budget, the rate was raised from 15% to 20%. In addition, Nepal Rastra Bank increased the amount of gold that can be legally imported daily from 10 kg to 20 kg from October last year. Even after the increase in the legal quota, the reduction in imports shows that smuggled gold can still meet the demand.
Commercial banks import gold in Nepal and sell it to sellers. Sellers make jewelry out of the gold and sell it to consumers. Raw (bulk) gold cannot be traded here.
The federation is preparing to meet the current finance minister Bishnu Prasad Paudel and apprise him about the customs duties on gold in Nepal and India and their impact. Bajracharya said, “The federation will also bring this issue to the attention of the current finance minister.” But since the customs duties set for this year have already been implemented, there is no possibility of the government modifying them.
There are suspicions that the government increases the duty on gold every year in order to facilitate smugglers. In Nepal, when the budget increases duty on gold, the profit margin for smugglers increases. Shakya said that the more profit there is to be made from doing illegal work, the greater the risk of thinking, activism, collusion and collusion with state institutions in such work.
Gold has also been smuggled in the past in collusion with customs officials, airport security personnel and high-ranking officials. The Office of the Auditor General in its 61st report said the increase in illegal gold imports has reduced revenue and increased the risk of foreign exchange misappropriation.
On the other hand, the demand is also met by the gold brought by young people who go abroad for employment. Nepalese citizens working abroad are allowed to bring up to 50 grams of gold jewellery. By abusing this concession, smugglers also take advantage of young people returning from abroad.
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