GJEPC seeks policy changes!

 

Required policy changes to eke out the remaining competitive advantage! 

Allow rough diamonds sale in the SNZ

GJEPC eyeing to double exports to $70 Bn by 2025! 

With an aspiration to increase the Indian gems and jewellery exports to $70Bn in the next five years by 2025, the Gem and Jewellery Export Promotion Council of India (GJEPC), the apex body for promotion of gems and jewellery exports, have proposed a sea change in certain reforms with respect to gems and jewellery exports. 

In its Budget Recommendations, the Indian diamond industry is seeking the following urgent policy reforms from the government: 

1: Reduction in import duty on cut and polished diamonds from 7.5% to 2.5%

2: Amendment in taxation provisions to allow the sale of rough diamonds in the Special Notified Zone (SNZ) in Mumbai

3: Exemption / Clarification of 2% Equalisation Levy on rough diamond sales 

India was observed to gain world market with increase in its exports of diamonds from merely US$5 billion in 2001 to US$22 billion in 2010. With this the country had overtaken Israel in 2008 as the top-most exporter of the diamonds in the world market that held 27.28% of polished diamonds exports in the world until 2008. 

With 14 out of 15 diamonds now being processed in India, and little room left to grow vertically, there is a significant movement within the industry to eke out the remaining competitive advantage that will help the country to grow as the Diamond manufacturing and Trading Hub of the world and double total gem and jewellery exports from $35 billion to $70 billion.

Commenting on the reforms proposed, Colin Shah, Chairman, GJEPC, said, “We do not have any natural advantage of rough diamonds, but India has achieved this position because of its proficiency in cutting and polishing rough diamonds. 

In 2019, India imported maximum rough diamonds of around 157 million carats for processing. India has the capability to sustain this position and further scale new heights. 

The Council has requested the Finance Minister that if customers in India choose to confirm their orders, an invoice can be made within the SNZ. Miners could pay a “turnover tax” not exceeding 0.16% (the prevailing rate in Belgium).” 

Further, GJEPC Chairman, Colin Shah also added, that, “due to Covid-19, all the transactions and diamond trade happens over e-commerce portals. However as per the proposed 2 percent Equalisation Levy on e-commerce trade this fiscal year, the additional taxation is like a burden to the trade fraternity. Covid-19 has pushed all our trade to happen over e-commerce. 

Already, due to Covid-19 challenges, the industry has faced heavy loss of exports and now followed by additional 2% EL tax is unfair to the industry. In our last meeting with Finance Minister, we had proposed to remove the 2% EL clause and we are hopeful that we will see amendment in this reform soon”.

Reduction in duty of Cut & Polished Diamonds: GJEPC has also urged  to reduce polished diamond import duty from 7.5% to 2.5% to help India to strengthen its status as a polished diamond hub, as all distribution would be from India, leading to increase in duty collection due to greater volumes.

Sale of rough diamonds: GJEPC have also proposed direct sale of rough diamonds by miners in Special Notified Zones (SNZs) in India. Currently, rough diamonds are sent to SNZs by miners for viewing in the country, post which diamonds are shipped back to Dubai or Antwerp by SNZ.  

Sales are not permitted, and if they do, it comes under the Permanent Entities as per the IT Act, and attracts income tax on the sale. The same goods are then shipped back to India via offices in Dubai or Antwerp, thus increasing costs for the importer. As much as 60% of the rough is routed through Antwerp or Dubai. 

Equalisation Levy (EL): Due to the application of 2 percent EL effective from this fiscal year, it will now apply on all overseas e-commerce transactions completed with Indian tax residents or those who purchase using an Indian IP address. This means, the procurement of rough diamonds from global miners and traders, through the e-auction process will attract additional 2 percent due to application of EL. 

While the EL is structured as a levy on the foreign entity, the global miners and traders are likely to revise the pricing structure to account for the EL. Leading global diamond miners have asked GJEPC for clarification of this additional 2 percent EL on the procurement of diamonds. 

This is leading further tax burden to the already severely hit Indian gems and jewellery exports industry. With the COVID-19 pandemic, for business continuity the entire transactions and business trade is happening online or by e-commerce platforms, with the advent of EL, India would lose its global competitive edge.”

India’s share of overall world gem and jewellery exports has remained stagnant at approximately 7% since 2001 owing to several factors, including a consistent policy focus for facilitating ease of doing business. The above reform recommendations and changes would help the industry sustain its direct supply of Rough Diamonds with allowance of sales at SNZ in Mumbai.