Mumbai Capital

The gem & jewellery industry asks for govt help

Praveenshankar Pandya, chairman, Gem & Jewellery Export Promotion Council  

he Indian gem and jewellery sector is choking on two fronts, and has sought government intervention as a last-ditch effort to stay afloat. Demand from its main export markets — US, China, Italy and Japan — is down due to sluggishness in those economies, while competition has emerged from China, Vietnam, Belgium, Israel and Dubai, which have emerged as major diamond polishing and cutting hubs.

To begin with, India has lost its competitive edge in the diamond cut and polishing business, which it has dominated for over four decades. While China has snatched the better margin-earning businesses, Dubai offers attractive benefits to companies engaged in cutting and polishing of diamonds. Vietnam is targeting the low-end jobs while the high-end work is still done in Israel and Belgium.

“For 40 years, the gem and jewellery businesses had never asked for any subsidies from the government but now time has come. If we don’t receive any help for at least a year, the business will suffer heavily and it may lead to large-scale job loss of highly-skilled workers,” said Praveenshankar Pandya, chairman, Gem & Jewellery Export Promotion Council (GJEPC), the apex body of the gem and jewellery industry.

Dubai has grown in the past seven years. Between Dubai, Belgium and Israel, they are registering a turnover of $120 billion, said an industry player who did not wish to be named.

“There is a drop of 25 per cent in roughs (imported diamonds) imported in the April-September quarter of 2015. It is difficult for diamantaires to hold on to stocks considering that margins are wafer thin,” said Mr Pandya. Industry players said without timely support, smaller factories will close down. The assets which include manufacturers and skilled labour force will go out of business. “Indian cutters and polishers can beat the best in the world but if there is no work they will be forced to take up other jobs and this skill will be lost forever,” a diamond merchant said.

A delegation of GJEPC and other industry representatives last week met the Finance Minister to discuss the critical issues facing the industry and suggest steps to solve those.

Many of the issues raised were related to the taxation policy of the government. They requested the minister to take measures that create certainty on tax provisions and reduce the quantum of tax-related litigation.

The government has been urged to introduce special turnover tax regime for the diamond industry, with 0.75 per cent tax on sales turnover. Currently, the diamond industry is paying corporate tax at the normal rate of 34.61 per cent on net income. But the industry players said the way their net income is computed for imposition of corporate tax needs to change as it is difficult to calculate the turnover on small pieces of diamond which have no uniformity. This has resulted in high tax burden on an industry which is operating at wafer-thin margins.

This would be along the lines of the tax regimes prevalent in other diamond trading nations like Belgium and Israel. Such an approach would be tax-neutral and encourage companies in Belgium and Dubai, especially those run by non-resident Indians, to shift capital to India, in addition to boosting exports, they said.

“To realise the Make in India dream of the Prime Minister and make India an international diamond trading hub, we seek implementation of presumptive taxation regime for the Indian diamond sector. By attracting international manufacturing business to India (diamantaires from Belgium, Israel and Dubai), we can tap additional market share of approximately around $20 billion (in FY 2018-19) thereby helping the government garner more tax collection in the long run,” Mr Pandya said “This will also help create jobs for 1.56 million Indians (by 2018-19) in the gems and jewellery sector while preserving skill and talent of our labour force. This will help tackle trade deficit and current account deficit through higher exports,” he said. The industry has urged the government to permit the sale of rough diamonds at the special notified zone (SNZ) in Mumbai by implementing a 0.25 per cent tax on sales turnover achieved at SNZ by foreign mining companies. This would generate a new area of tax collection by shifting such sales from Belgium, Israel and Dubai.

The Finance Minister was also apprised of harassment faced by the industry in the form of different litigations related to penalty for record keeping for transfer pricing imposition of both import duty and service tax on same goods non-refund of service tax paid on way of exports.

The government has been urged to include the gems and jewellery segment under the Interest Subvention Scheme and the Merchandise Exports from India Scheme that will help the sector bounce back.

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Printable version | Jan 25, 2021 10:19:21 PM |

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