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The Union government has partially suspended pure gold imports and exports from special economic zones (SEZs), alarmed at the rampant diversion of the duty-free yellow metal to domestic markets. SEZs are allowed duty-free imports as opposed to a maximum of 6 per cent charged on imports by other entities.
A Commerce Department official stated that both pure gold trading and medallion manufacturing had been prohibited. The government is also planning to impose a minimum 5 per cent value addition requirement on all gold exports from SEZs. The official said a number of units were found to be indulging in trading gold instead of manufacturing, taking the advantage of the zero duty in the tax-free zones.
SEZ units earn arbitrage profits as high as 7.5 per cent (6 per cent customs duty plus 1.5 per cent excise duty) if they divert imported gold to the domestic market. Gold trading and medallion manufacturing does not involve much capital, infrastructure or labour.