Following the implementation of the new goods and service tax (GST) in India on July 1, jewelry dealers in the country will pay taxes ranging from 0.25 to 3% for gems. More specifically, gold, semi-diamonds and cut diamonds will attract a 3% tax, whereas rough diamonds will be taxed at 0.25%. The new tax rates are in line with the old tax rates for jewelry, which ranged between 2 and 2.5% for all states except Kerala. Under the new unified service tax (GST), consumers will effectively pay a 13% duty on gold and diamond jewelry because the GST Council maintained the 10% import duty. Below is some more information on this topic.
An Overview of Gem & Jewelry Industry in India
Accounting for about 7% of the country’s GDP, the Gems and Jewelry industry is one of the biggest industries in India. On a global scale, India is a major player in this space. For instance, the country is home to the biggest diamond exchange in the world; the Bharat Diamond Bourse (BDB). Located in Mumbai, India, the BDB covers over 20 acres and is home to over 2,000 diamond dealers — both small and large—, as well as other service providers in the industry such as banks and the Custom house. India currently cuts, polishes and exports more diamonds than any other country in the world. Specifically, according to figures from the Gems and Jewelry Export Promotion Council (GJEPC), Indian diamond cutters today produce 11 out of every 12 cut diamonds in the world. Moreover, the country global production by value and volume currently stands at 60% and 85% respectively.
Furthermore, estimates from Research and Markets, a leading market research company, show that the India’s gem industry will experience a Compound Annual Growth Rate (CAGR) rate of about 16% from 2014 to 2019. Some of the factors that have made India the jewelry capital of the world include the availability of relatively inexpensive but high-skilled labor. Given the significance of this sector both locally and internationally, the Government of India regularly takes measures aimed at promoting investments in the industry. One such measure was the recent implementation of the GST.
Market Reaction to GST
Major players in the industry, including Mark Gershburg, the CEO of GSI , an independent gemological organization with a global footprint, have expressed their support and satisfaction with the new tax rates. In particular, Gershburg believes that the new GST tax rates would spur growth and help organize the jewelry industry. Additionally, the rates would promote transparency in the industry.
Cons of GST
One of the concerns over GST is it may make India’s diamond exports less competitive on the global market in terms of price because some Asian countries including Thailand, China, Sri Lanka and Vietnam do not levy GST on imported rough diamonds.
In a bid to streamline and organize Gem & Jewelry Industry in India, the Government of India introduced new GST tax rates effective July 21. Under the new rates, semi-diamonds and cut diamonds will attract a 3% tax, whereas rough diamond imports will attract a 0.25% tax.