Indian Tax On Rough Import Retrograde, Says GJEPC Chairman

The Indian government announced its long-awaited tax regime for the gem and jewellery industry under the new Goods and Services Tax (GST) system over the weekend. Gold and gold jewellery will now attract a 3 percent tax, while rough diamond imports, hitherto completely tax-free, will be taxed at 0.25 percent, with the importer entitled to a refund if the resulting polished is re-exported.

Gem & Jewellery Export Promotion Council (GJEPC) Chairman Praveenshankar Pandya expressed his disappointment at the move, observing, “Taxing diamonds is a retrograde step and not in sync with an equivalence policy. Diamonds are the key raw materials for the gem and jewellery exports business. Rough diamonds have been kept out of the purview of taxes even in various Asian countries which are globally competitive. In sync with the Prime Minister’s directives, gems & jewellery exporters have to focus on the big picture of making India a global diamond hub and popularise Indian jewellery across the world, rather than get entangled in procedures for a refund. It is difficult for gems & jewellery exporters to pay 0.25 percent and then initiate the process for refunds.”

Other industry sources, speaking off the record, told GEMKonnect that the new tax could lead to capital flight and the migration of diamond manufacturing to other countries as considerable amounts of working capital would be tied up. Citing the actual working of previous refund schemes, the sources said that while the tax on imports had to be paid immediately, the refund procedure would typically take months and could easily stretch into years in many cases.

Pandya went on to say, “For a segment wherein 95 percent of the output is exported and whose global footprint is under constant stress from other competitive economies, an upfront levy of GST on rough imports, which was hitherto exempted, would invariably cause a major setback to the trade and impact India’s significance in the global markets.”

Pandya also enumerated an industry request list in the wake of the new tax. He asked the government to grant that:

• Transactions carried out through the Diamond Dollar Accounts (a foreign currency account that certified exporters are allowed to keep) be nil-rated.
• Local transactions in respect of rough as well as polished diamonds, for the purpose of or in furtherance of exports, should be exempted from GST.
• Import of gold, platinum and silver as input (from the nominated agencies, banks and foreign buyers) for the purpose of manufacture and export of gold,platinum and silver jewellery be exempted from GST, against the provision of bank guarantee, in terms of the prevalent central and state government schemes.

Pandya however, welcomed the government move to keep GST at 3 percent on gold and jewellery, saying this was in line with industry representations and recommendations. 

The All India Gems & Jewellery Trade Federation (GJF) too expressed its satisfaction at 3 percent GST on gold and gold jewellery.

GJF Chairman Nitin Khandelwal

GJF Chairman Nitin Khandelwal said, “This is a landmark day for the jewellery sector, as the government rightly kept the overall tax burden low in the industry, keeping in mind the unique characteristics of the gems and jewellery sector, the karigars (artisans) and small jewellers.”

He added, “We wholeheartedly thank Finance Minister Arun Jaitley, State Finance Ministers, the GST Council, VAT Commissioners and the entire Central Board of Excise and Customs (CBEC) for their tremendous support and guidance.  This low GST rate would help the gold and jewellery trade to go for more compliance and help it mature as an organised sector in the years to come.”

Khandelwal went on to say, “In fact, this move will encourage the industry to become more organised, and help the GJF take them towards the path of accountability and transparency. We urge the jeweller community to exercise utmost preparedness and start migrating to the GST regime, with the help of Software that will be launched soon by GJF, that will help the jewellers migrate and comply”.  

The GJF has had meetings with Indian Finance Minister Arun Jaitley, the Revenue Secretary and the Finance Ministers of more than 20 states as well as VAT and GST commissioners over the last few months to state the industry’s case.

https://www.gemkonnect.com/news/indian-tax-rough-import-retrograde-says-gjepc-chairman