Is GST on diamond processing an unintended gift to China?

5% tax on job work to make smaller stones costlier; two-third local units may shift base to China

Over two-thirds of the diamond processing business in India could shift to competing countries, primarily China, due to the 5 per cent goods and services tax (GST) levied on small rough diamonds meant for domestic movement.
 
The Gems and Jewellery Export Promotion Council (GJEPC) reckons India’s rough diamond imports at 153.31 million carats worth $17.08 billion in 2016-17. Rough diamond imports grew 10.77 per cent by volume during 2016-17. Around 85 per cent of rough diamonds mined in the world are processed in India. Almost all miners like Alrosa, De Beers and Rio Tinto increasingly focus on Indian processors.

 
“With 5 per cent GST levied on services by diamond processors, the business will shift to China,” said Praveen Shankar Pandya, chairman, GJEPC. Of the 153 million carats of rough diamonds imported, 35 million carats are re-exported. The value addition is estimated at 50-60 per cent. Many countries that have implemented the GST have exempted diamond imports. In India, 700,000 skilled and unskilled workers are employed in 40,000 small and medium enterprises (SMEs) engaged in diamond processing. “Compliance will be challenging and processors will prefer to move out of India,” Pandya added.
 

The government has levied a 0.25 per cent GST on import of rough diamonds and the duty burden on processors is 5.25 per cent.

 
“These units need to be protected. The GST on diamond processing should be abolished to avoid migration of the business,” Pandya said.