NEW DELHI : The commerce ministry is discussing a reduction in import taxes on gold to rein in illegal shipments, according to people familiar with the matter.

The world’s second-largest consumer of the precious metal, almost all of which is purchased from abroad, has asked the finance ministry to consider reducing the tariff to about 10% from 12.5%, two of the people said, asking not to be identified as the deliberations are private. It’s as yet unclear if the recommendation will be accepted and a decision could be announced at or before the budget presentation due early next year, they added.

The matter presents a dilemma for finance minister Nirmala Sitharaman, who needs to keep imports low to contain a widening trade deficit, but smuggling robs the government of much-needed revenue. Her administration had raised the tariffs in July, following which the nation’s purchases tumbled.

A finance ministry spokesperson declined to comment and a commerce ministry representative didn’t respond to email and text message seeking comment.

India’s gold imports fell 23% in July-September from the same period a year ago, according to World Gold Council data, following the tariff increase.

The bullion industry is seeking a reversal of the tax increase made in July and a reduction in the goods and services tax (GST) to 1.25% from the current 3%, according to the All India Gem and Jewellery Domestic Council. 

“The higher import tax is creating problems in the domestic industry as it increases unofficial goods coming in and benefits the illegal trade,” said Ashish Pethe, chairman of the Mumbai-based trade group. “Our long-term suggestion is that the duty should be anywhere between 4%-6%, where the government will also get a good enough revenue and illicit trade will also not be there.”

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