Gold imports from Dubai may rise after duty hike: GTRI

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Stack of gold bars. | Photo Credit: brightstars

The significant increase in the import duty on gold from 6 per cent to 15 per cent may lead to an increase in imports from Dubai through the free trade agreement route, think tank GTRI said on Wednesday.

It said that the duty hike also sharply changes the economics of precious metal imports routed through the United Arab Emirates under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

India had allowed imports of gold from Dubai at tariffs one percentage point below the normal Most-Favoured-Nation (MFN) rate through a Tariff Rate Quota (TRQ) system.

The quota began at 120 tonnes annually in 2022 and is set to rise to 200 tonnes by 2027, nearly one-fourth of India's yearly gold imports.

"With the new MFN tariff structure taking effective duties to 15 per cent, gold imported under the UAE quota would enter at 14 per cent. The widening tariff gap could encourage greater routing of global bullion through Dubai, even though the UAE is not a miner of gold or silver," the Global Trade Research Initiative (GTRI) said.

Under the CEPA, India had also agreed to gradually reduce import duties on silver from 10 per cent to zero over a 10-year period beginning in May 2022.

The concessional tariff on silver imports from the UAE currently stands at 7 per cent.

"With India now raising the general tariff to 15 per cent, the duty gap has widened to 8 percentage points, creating a major arbitrage opportunity for imports routed through Dubai. That margin is scheduled to widen further each year until CEPA tariffs fall to zero by 2031," GTRI Founder Ajay Srivastava said.

Under the earlier regime, imports of gold and silver products attracted a 5 per cent Basic Customs Duty (BCD) and a 1 per cent Agriculture Infrastructure and Development Cess (AIDC), taking the total levy to 6 per cent.

After adding 3 per cent Integrated GST (IGST), the effective total import duty stood at 9.18 per cent. The revised structure doubles the BCD from 5 per cent to 10 per cent and raises the AIDC five-fold from 1 per cent to 5 per cent.

The combined customs levy has, therefore, jumped from 6 per cent to 15 per cent. Including IGST, the effective import duty has surged from 9.18 per cent to 18.45 per cent. The move comes amid a surge in precious metal imports.

In FY 2025-26, India imported nearly $72 billion worth of gold, around 25 per cent higher than the previous year. Silver imports crossed USD billion, recording an extraordinary 150 per cent increase annually.

Further, GTRI urged the Finance Ministry to simplify the language of notifications regarding these tariff changes, as they are extremely difficult to understand.

The current format forces importers, lawyers and consultants to trace references to customs notifications issued over the past 26 years, the think tank said, adding that determining the actual applicable duty now requires going through multiple layers of amendments, corrections and tariff changes issued over several decades.