Friday, November 21 2014

VOL 21 NO 12 REGD NO DA 1589 | Dhaka, Friday, November 21 2014

http://www.thefinancialexpress-bd.com/2014/11/21/67077

Seizing the potential of jewellery exports

M S Siddiqui

Customs officials display smuggled gold bars that were seized at a Biman flight from Dubai at Shahjalal International Airport on November 11, 2014.

Gold, as defined under Section 2 of the Foreign Exchange Regulation Act, takes the form of coin
or bullion or ingot whether refined or not. The annual demand for gold in Bangladesh is 17
tonnes, but there has been no formal import of the precious metal over the last few years except
travellers bringing it in a large quantity under the baggage rule.
The local jewellery industry could not draw attention of the policy-makers until the incumbent
finance minister told parliament while placing the budget for the fiscal year 2014-15 that the
government had 'somehow missed' increased customs duty on import of gold for many years.
According to the customs data on imports, there had been no import of gold during the last four
years. Still there is no shortage of gold in jewellery. The industry is getting its required supply
from smugglers and travellers bringing in the metal under the baggage rule. The baggage rule
allows inbound non-resident Bangladeshi passengers to carry gold bars or bullion weighing
maximum 5kg per head. Other passengers paying short visits overseas can bring in 200 grams of
gold per head.
A cumbersome import procedure and high taxes have led the Bangladeshi jewellery industry to
rely heavily on smuggled gold. There is no provision in the import policy for direct import of
gold bars. It allows jewellers to import gold. But it takes over 15 days to get the approval. Such a
long time makes it difficult for the importers to adjust the prices as these fluctuate every day.
Moreover, jewellers can import gold only by opening letters of credit (LCs) and they are required
to pay tax at the rate of 58 per cent. This is also a lengthy and complex procedure.

Most of the ornaments available in the local market are made of smuggled gold. The baggage
rule in a sense has officially approved smuggling for a country where the customs duty is high. A
relatively conservative country like India now has lower customs duty on imported products.
Jewellers here are compelled to buy smuggled gold and silver at much higher rates than the
international market prices. This leaves its impact on prices of gold and silver jewellery. This is
also preventing exporters from exporting their products to overseas markets, although the
jewellery from Bangladesh is known for their beautiful designs in the international markets.
The complex rules on gold jewellery export are enough to discourage any entrepreneur to go for
exports. There is the bonded warehouse facility. Customs officials are there working as bond
supervisers. The industry can withdraw the required amount of gold from the bonded warehouse
for a particular day under the supervision of the customs official concerned. Again, the finished
jewellery made till 5:00 pm on the day has to be kept in the bonded warehouse's locker in
presence of the customs official.
Because of all these long and complicated procedures, an entrepreneur does not want to take the
hassle of export. This is also the reason why we lost a potential market in the Middle East,
created in the early 1990s. India later grabbed the market. Moreover, a prior permission of the
Bangladesh Bank is required for export of any jewellery products in consignments or for sale at
exhibitions abroad.
The National Board of Revenue (NBR) decided hurriedly in May last to increase duty on import
of every 11.66 grams or one bhori of gold bars under the baggage rule at Tk 3,300 from Tk 150
just one month before announcement of the new budget. They said the initiative was taken as a
preventive measure as the imported gold was being smuggled out to neighbouring India from
Bangladesh. The NBR feared that the imported gold could be smuggled out to India causing loss
of foreign currencies. The smuggling in gold for the domestic market is more beneficial to those
who are supposed to check it. So, they keep mum on import and export policy relating to gold
and gold ornaments.
The Indian government in its bid to bring down the currency shortage and stop the outflow of
foreign currency increased the duty on gold import from 2.0 per cent to 4.0 per cent in April
2012. India's import tax was also raised to 10 per cent from six per cent. That left Indian gold
traders increasingly dependent on smuggled gold as the precious metal is in high demand there.
At present, the Indian market is seriously dependent on the gold smuggled out from Bangladesh.
It has been reported that nearly 320 kilograms of gold are being smuggled into India from
Bangladesh every day. The gold is brought to Bangladesh from Middle East countries,
Singapore, Malaysia, Hong Kong and Dubai by air, sea and land routes. It is then smuggled into
India through bordering areas, including Benapole and Satkhira.
The government of Bangladesh could reduce tariff and tax to encourage import of gold and thus
cash in on the high demand in India, one of the biggest markets for gold. But in the budget for
the fiscal year 2014-1015, the government has proposed a tariff of Tk 3,000 per 10 grams of
gold. It may encourage more smuggling in gold.

The Indian Eastern Region Gems and Jewellery Council has conveyed to the Indian government
that the livelihood of over 7.5 million jeweller families in Paschimbanga is at stake due to the
heavy customs duty on gold and smuggling in gold and readymade ornaments from Bangladesh.
They have suggested that the government reduce the duty on imported gold to 5.0 per cent to
check the unprecedented surge in gold smuggling from Nepal and Bangladesh, the transit routes
for smuggling of the yellow metal into India. On an appeal from the association, the Indian
government has decided to reduce the tax on gold.
India consumes 700-900 tonnes of gold a year with the demand being met almost wholly by
imports. Gold is India's second largest commodity by value, behind crude oil. Bangladesh can
cater to the demand in this big market by lowering its tariff on gold and at the same time
exporting gold and readymade ornaments to India.
Bangladesh can authorise a bank or a gold exchange to import the metal for distribution among
the stakeholders in the local industry or also can allow its free import. Any of the methods, if
applied, would benefit the local customers as they would be able to buy gold and silver jewellery
at affordable prices. As a result, the government's revenue income would go up with the rise in
sales locally and also in export markets. Gold may emerge another promising sector like
readymade garment. The investment-employment ratio in the jewellery sector is the lowest
compared with any other one.
Bangladesh has increased the customs duty on gold for increasing its revenue income although
there had been no import of gold for the last four years. On the other hand, the Indian policymakers are thinking of reducing the customs duty to seize the opportunity the jewellery sector
offers both in the global export and regional informal markets. Bangladesh's policy is in sharp
contrast to the reality of this potential sector.
The writer is a Legal Economist.
shah@banglachemical.com