Gold Demand Could Plunge As India Considers New Tax Policy

By Dave Forest - May 29, 2017

 Gold

It’s been a solid year for gold buying in India. With demand in the world’s top-consuming nation rebounding after a series of political setbacks in 2016.

But reports this past week suggest bullion buying across India has once again gone quiet. With consumers waiting for the outcome of a critical new government policy.
The goods and services sales tax.

India’s government has been moving to impose a new sales tax on various goods. With the tax slated to kick in as of July 1.

Gold is one of the products to be taxed. But here’s the problem: the government has yet to specify the exact tax rate for bullion.

Sources in India have suggested the sales tax on gold will likely be set between 1 percent and 5 percent. Representing a significant range of possibilities for extra charges that gold buyers will have to cover going forward.

Reports suggest that buyers have therefore largely halted purchases, as they wait for a final ruling on the tax rate.
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The process of setting rates, however, appears to be experiencing problems. With a special government council meeting last week on the issue — but coming away without a final decision.

Reports now suggest the rate will be determined in meetings on June 3. Meaning we could get news next week on the final numbers.

The result will be important for the gold market. If the sales tax comes in on the high end, demand could be impacted. If the figure is closer to the 1 percent mark, the effect will be more muted.

One final point of note: jewelers in India reportedly stocked up on gold ahead of the tax decision. Buying in bulk to get in ahead of the July 1 tax-driven increase in prices.

That could mean less demand over the next few months, whatever the tax rate comes in at — as large inventories work their way through the system. Watch for news on or after June 3 about the tax rate decision, and for stats on gold buying here over the next few months to gauge the effects.

By Dave Forest