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Uttarakhand gold refiners may lose edge over other players

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Gold refineries in Uttarakhand’s Rudrapur town may soon lose the edge they have had over refineries in other parts of the country. Union ministry of finance is considering a proposal to increase import duty on unrefined gold (dore gold) to 9 per cent from 8 per cent at present.

This one per cent increase will wipe out the advantage that Uttarakhand refiners have over their counterparts. Two independent sources have confirmed the finance ministry proposal.

At present, Uttarakhand gold refiners enjoy excise holiday, paying only 8 per cent import duty on dore. Refined gold has 10 per cent import duty. However, refineries in other parts of the country pay excise duty. With cenvat credit, their total duty outgo is 9 per cent, creating a one per cent gap.

Barring two big refineries, there are several smaller refineries in Uttarakhand. Many of them can’t even operate daily. Even employment generation in smaller refineries is low. These smaller refineries pass on part of the duty benefit to goldmines to procure dore. In other words, they are procuring dore at a premium.

“These things are not benefiting the country and hence there is a proposal to do away with the additional duty benefit to refiners in this excise-free zone,” said one of the two sources. While finance ministry is considering the proposal, if and when Goods and Services Tax (GST) is implemented, region-specific excise exemptions will cease to exist. This will automatically end the additional one per cent duty benefit to Uttarakhand gold refiners.

Shailesh Sheth, advocate and senior advisor – indirect tax, BDO India said, “Under the proposed GST regime, area-based exemptions for Central and State levy will no longer be available. This may deal a serious blow to the existing units in such areas which have not fully exhausted their benefits. Since the ramifications for such manufacturing units are quite serious, it is expected that some sort of ‘grandfathering’ may be required by the government to rescue such units from the adverse impact of GST.”

If the government announces region-specific benefits, by a separate notification or legislative changes, to protect investors who had put in capital with long-term outlook, than raising import duty is the only option to discontinue discriminatory tax treatment.

There are 27 gold dore refineries in India, 18 of them are in Uttarakhand alone. India has total gold refining capacity of 1,467 tonnes, of which only 20 per cent is being used.

However, lower import duty than refined gold makes refining business viable. In 2015, India’s dore import is estimated at 300 tonnes. This may go up to 400 tonnes next year.

 

[“source-businesstoday”]

 

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