Industry News by Nemesis

Tax Issues Heated in Indian Diamond Industry, Manufacturers May Set Up Russia Units

January 12, 2018

Recent reports ranging from the Gem and Jewellery Export Promotion Council's (GJEPC) lobbying efforts to change the Goods & Services Tax (GST) for the diamond industry, to Indian manufacturing companies looking to set up cutting and polishing units in Russia and an estimated $158 million in couriered diamond parcels seized on suspicion of tax evasion have the Indian industry hot under the collar about the GST.


The GJEPC has long lobbied for a more favorable taxation regime for the industry, and on January 4, together with the Surat Diamond Association, made a presentation to the Minister of Finance, Government of India, Shri Arun Jaitley. At the meeting, the impact of GST on the diamond sector was discussed in detail. The government was requested to introduce a scheme under GST whereby all transactions between import and export are in a no-tax situation. 


Just one day prior, The Economic Times ran a story stating that India's diamond manufacturers are looking at setting up cutting and polishing units in Russia for easy access of rough diamonds from ALROSA mines as the central government has yet to come up with a tax structure to enable the country's diamond trade to directly purchase rough diamonds from the special notified zone (SNZ) at Mumbai's Bharat Diamond Bourse. KGK Diamonds last year announced it was setting up a cutting and polishing unit in Vladivostok in Russia, and two more leading diamond companies including M Suresh & Co are looking at opening units in Russia.


At present, diamond manufacturers can view the diamonds from miners at the SNZ and bid but they cannot procure it locally. They have to buy diamonds from Belgium, Dubai, Singapore and Russia despite successful bidding at the SNZ. If they could buy rough diamonds on the spot, their transaction cost would go down.


"In the absence of a proper tax structure for trading at SNZ, we fear that Indian diamond companies may shift a portion of their business to Russia," said Sanjay Shah, convenor, diamond panel, Gem & Jewellery Export Promotion Council (GJEPC).


A few days later, it was reported that GST authorities conducted a series of raids on angadias, the courier firms that have traditionally transported rough and polished diamonds between cutting centres and sales offices. The crackdown involved over 200 courier firms, with the authorities suspecting tax evasion by diamond processing firms. Parcels with diamonds estimated at $158 million were seized at Mumbai Central station from couriers that had just got off a train from Surat. Authorities thought the parcels might involve tax evasion worth $47 million.


The couriers have now stopped accepting parcels from any firm that does not have a full GST registration. This only added a sense of urgency to the GJEPC's position that clearer tax rules are needed, as the authorities raided diamond couriers who were transporting finished goods back to their owners in Mumbai. GJEPC chief executive director Sabyasachi Ray said the GST officials were not properly informed of how the trade works and that tax should not have been levied on the goods. Most of the confiscated diamonds have been returned, and the rest should be soon. 


In India, the tax applies to imported diamonds, but not exported ones. Consequently, when diamond traders import stones for manufacturing, they must pay the import levy and then claim a refund when they export the polished diamonds - a process Ray called “futile,” since, he said, 95% of the diamonds in the Indian market are destined for export after cutting and polishing.


Source: The Diamond Loupe

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