Indian Diamond Industry recommends a Presumptive Tax system

In a highly emotional plea to the government, the Gems & Jewellery Export Promotion Council (GJEPC), the apex body sought a positive initiatives from Govt. for simplification of tax regime in the forthcoming budget during a press conference held in the Capital today. Highlighting the contribution of the entire Gems & Jewellery industry, not only to the generation of high employment in the country but also towards making India into the world’s leading gems & jewellery hub, Mr Rajiv Jain, Chairman of GJEPC appealed to the government to remove tax related strangleholds that are preventing the industry from growing at a healthy and desired pace. Additionally, some of these issues are also creating conflict resulting in litigation and high cost of collection of income tax by the GIO. At the root of the matter lies the issue of the Presumptive Tax as recommended by the Sivaraman Committee in 2006 appointed by the then Finance Minister, P Chidambaram; which the government has failed to implement till date. In other parts of world such as Belgium and Israel that were faced with similar challenges in tax collection, Presumptive Tax regime was successfully implemented and that helped the countries emerge has one of the largest diamond processing and trading hubs in the world.

As per the Sivaraman Committee’s recommendations, the introduction of a Presumptive Tax system would:

• Encourage more investment in the sector
• Retain trade, skilled labour and capital within the country
• Enable voluntary compliance leading to increased revenue
• Enhance global competitiveness of the Indian industry
• Foster increased employment opportunities

In lieu of these recommendations, a mere Benign Assessment Procedure was introduced in 2007-08; which has not achieved the desired results and on the contrary is actually impeding the progress of the industry. In its latest appeal, the industry is seeking for the withdrawal of the Benign Assessment Procedure and the acceptance of the Sivaraman Committee’s recommendation. The GJEPC recommended that the prescribed rate to be reflective of the reality in the diamond manufacturing and trading industry which is in the range of 1% to 3%.

On the other hand, the non acceptance and non implementation will have adverse impact on the GOI and the Gems & Jewellery industry of India, some of which are as follows:

• Shifting of business to other jurisdictions and non fulfillment of the vision of establishing India as the Trading Hub  
• Depleting profit margins within the sector, coupled with an uncompetitive tax environment are driving investments away from India
• Loss of employment in India

The other woes to which the industry is seeking solutions are as follows:  

• Import duty reduction on Machineries from 10% to 5%
• Import duty reduction on Worked Coral from 24.42% to 0%
• Import Duty Reduction on Rhodium from 2% to 0%
• Income Tax Exemption to all Export Promotion Councils
• Amendment in the Income Tax Act 1961-Trading in derivatives in specified stock exchanges will not be treated as “speculative transactions for the purpose of Income Tax Act
• Withdrawal of 1% Excise Duty on Branded Jewellery
• To allow import of rough diamonds on consignment basis from mining companies like Alrosa, Debeers,etc
• Reduction of Interest in export sector in Rs terms
• Availability of Dollar financing to exporters.

Concluding the press conference, the Council expressed the immediate intervention of the Hon’ble Ministry of Commerce to impress upon the Ministry of Finance the urgent need for introduction of a Presumptive Turnover based tax scheme at a rate reflective of the profits actually generated by the majority of the industry.

Following are the itemwise exports of gems & jewellery from India during 2010-2011.

NOTE: 1. Figures in bracket shows quantity of diamonds in lakh carats.

(As per RBI monthly average exchange rate)