The Government of Nepal has suffered a revenue loss exceeding Rs 3 billion within just two and a half months, primarily due to a sharp decline in gold imports after the Indian government reduced customs duties on gold, a study has revealed.
Traders have stated that commercial banks, which are authorised to import up to 20 kg of gold daily, have halted imports, leading to this significant revenue shortfall. Sumanman Tamrakar, president of the Nepal Gem and Jewellery Association, explained that India's federal budget, announced in early August, reduced customs duty on gold, making it cheaper in India than in Nepal. This price disparity has widened the gap between the two countries, encouraging smuggling through unauthorised routes. According to Tamrakar, banks have stopped importing gold due to fears of being unable to sell the more expensive, legally imported gold, as the market is now flooded with cheaper, smuggled gold from India.
India currently imposes a 6% customs duty on gold imports, while in Nepal, the rate stands at 20%.
“Banks should be importing 20 kg of gold daily, but due to the disparity in customs duties between Nepal and India, they fear losses. As a result, they have stopped imports for the past three months, leading to a revenue loss of Rs 3.06 billion,” Tamrakar stated during the 19th annual general meeting of the association on Saturday.
He urged Industry, Commerce, and Supplies Minister Damodar Bhandari, who was the chief guest at the event, to take immediate action. “We request the Minister to promptly adjust the customs duties on gold and silver. This will have a positive impact on revenue collection and create a favourable environment for legal trade, benefiting traders across the country.”
The reduction in gold prices in India has also drawn customers from Nepal's border areas, who are crossing over to purchase jewellery, resulting in a significant slowdown in business for Nepali jewellery shops in these regions. Tamrakar expressed frustration that despite repeated calls for the harmonisation of customs duties between Nepal and India to curb illegal trade, the government has not responded. This has put the jewellery business, which employs 400,000 workers and involves 22,000 traders, at risk of collapse.
He also emphasised the urgent need for regulations governing the precious jewellery industry, calling for the swift enactment of relevant laws. Furthermore, he urged the government to include jewellery in the list of products eligible for export cash incentives, arguing that while Nepal has significant potential for jewellery and gemstone exports, high costs have stifled the volume of exports. Cash incentives, he added, would help boost these exports.
Tamrakar also called for timely reforms in the gold and silver supply system and proposed the formation of a Gems and Jewellery Council. He stressed the importance of simplifying the gold supply process, which is currently managed by commercial banks.
During the event, Senior Vice President of the Federation of Nepalese Chambers of Commerce and Industry (FNCCI), Anjan Shrestha, suggested that traders be allowed to import gold on a quota basis when banks fail to do so. He also highlighted the need for a permanent policy for the processing of the precious stones found in Nepal.
FNCCI Vice President Hemraj Dhakal echoed the need for an immediate reduction in gold import duties, citing the challenges posed by India’s tariff cuts. He noted that the customs duty disparity between Nepal and India has led some traders to consider relocating their businesses to Dubai. Dhakal also urged the government to introduce training programmes for workers in the jewellery sector, as Nepal currently relies on skilled labour from India and Bangladesh.
Former President of the Nepal Chamber of Commerce, Rajendra Malla, called for an immediate adjustment of Nepal's customs duties imposed on gold to align with India’s rates. He also recommended permitting the purchase of old gold provided a three-generational family history as proof. Malla further criticised efforts to bring the private sector under the jurisdiction of the Commission for the Investigation of Abuse of Authority (CIAA), stating that this has caused unnecessary concern among traders.
Addressing the event, Minister Bhandari assured that the government is highly sensitive to the long-standing demands of gem and jewellery traders. He confirmed that discussions had taken place within the cabinet on the need to adjust gold customs duties, and that the traders’ demands would soon be addressed. The minister acknowledged that the reduction in customs and tax rates by neighbouring countries had affected Nepal's gold and silver businesses and revealed that the government had initiated discussions to adjust these tax rates accordingly. He assured that the government is committed to resolving the traders’ concerns swiftly.
