MUMBAI (Reuters) - Gold demand in India could be muted in the second half of 2017, as the rollout of a new national sales tax from July is expected to dent appetite in the world’s second-biggest consumer, the World Gold Council (WGC) said on Thursday.
But sales are likely to be robust during the first six months of the year, the WGC said.
Gold consumption in the first quarter of 2017 rose 15 percent to 123.5 tonnes on pent-up demand from jewelers as retail consumers ramped up purchases for weddings, the WGC said in a report published on Thursday.
The WGC kept its forecast for India’s full-year demand at 650 tonnes to 750 tonnes, lower than a 10-year average of 845 tonnes, but just above last year’s level.
In 2016, gold demand fell 22 percent from a year earlier to 666.1 tonnes, the lowest in seven years.
“With the implementation of GST, we are expecting some kind of disruption in demand in the second half,” Somasundaram PR, Managing Director of WGC’s India operation, told Reuters referring to a Goods and Services Tax (GST) that will be implemented from July 1.
The long-awaited GST is hailed as India’s biggest tax overhaul since independence in 1947. The GST will replace a slew of federal and state levies, transforming Asia’s third largest economy into a single market for the first time.
But small jewelers, who account for nearly two-thirds of the gold industry, could face operational issues in transitioning to the GST, Somasundaram said.
Gold is a mainstay of Indian culture, serving as the primary vehicle for household saving for hundreds of millions of people.
The government of Prime Minister Narendra Modi has tried to curb costly bullion imports and put restrictions on cash transactions.
Indians buy more than two-thirds of gold with cash.
To cut down unofficial trading, under the GST, gold should be taxed substantially lower than the existing duty of 12 percent, Somasundaram said.
The WGC has estimated that 100-120 tonnes of smuggled gold entered India in 2016. Smuggling has surged since New Delhi raised the import duty on gold to 10 percent in 2013 to narrow a gaping current account deficit.
Editing by Mayank Bhardwaj and Richard Pullin