The Indian Government has increased the customs duty on imports of gold alloys under the Comprehensive Economic Partnership Agreement (CEPA) with the UAE, aiming to close a loophole exploited by bullion dealers that led to significant market distortions and revenue loss.

In a move to close a loophole exploited by bullion dealers, the Indian Government has raised the customs duty on imports of alloys mixed with gold under the Comprehensive Economic Partnership Agreement (CEPA) with the United Arab Emirates (UAE).

A Gazette notification issued late Monday announced an increase in the import duty on gold alloys to 3.6 percent from the previous 0.5 percent. Additionally, the Agriculture Infrastructure and Development Cess has been set at 1.4 percent.

This duty hike comes in response to a surge in platinum imports, which during a four-week period from mid-June, exceeded the total imports of the precious metal for the entire year of 2023.

Bullion traders interpret this increase as a signal that the duty structure under CEPA with the UAE might be further revised. They noted that importing gold as a platinum alloy will no longer be cost-effective due to higher production costs.

Surge in Imports

According to Reuters, bullion dealers imported 13 tonnes of gold alloy metals valued at $1 billion during the mid-June period, compared to a total of 9.97 tonnes imported throughout 2023. CEPA provides lower duties on value-added products, and traders in Dubai took advantage of this by mixing platinum and copper into gold bars to claim duty benefits under value-addition norms.

A loophole in the rule allowed alloys containing 2 percent or more of platinum by weight to be classified as platinum alloys, despite containing about 90 percent gold. This allowed importers to avoid the higher 15 percent customs duty on gold, paying only 5 percent on platinum alloys instead.

Market Distortion

The lower duties paid on these "platinum alloys" allowed importers to sell refined gold at a discount, undercutting those importing gold through legitimate routes. This practice not only caused a significant revenue loss for the government but also led to price distortions in the domestic market.