• Demands correct implementation of Benign Assessment Procedure
• Forecasts Silver as the most preferred metal for 2013

With 28 days to go for the Union Budget, the Gem & Jewellery Export Promotion Council (GJEPC) announced its expectations for the Indian Gem & Jewellery sector with the objective of increasing global exports, identifying new trade partners and promoting diamond Jewellery in India. With the increasing import duties on Gold and other raw material such as Cut & Pol diamonds, the industry has also requested for eased tax norms, given the already slowed down economy. The Council has strongly recommended the implementation of the Benign Assessment Tax Procedure and therefore reduction of the net profit to 2.5% of turnover instead of 6% for computation of Income Tax.

Commenting on the pre-budget recommendations, Mr. Vipul Shah, Chairman of Gem & Jewellery Export Promotion Council said, “Our aim has always been to stimulate greater foreign and domestic participation and also relieve the industry from the various challenges it currently faces. The most significant reform on the agenda is the correct implementation of Benign Assessment Procedure and we are hopeful that the Ministry will pay heed to this long overdue policy change.” He further added, “On a positive note, the import of rough diamonds has shown a healthy increase, resulting in high level of diamond jewellery manufacturing activity, higher jewellery exports and eventually a positive balance of payments for the country”.

“Reduction in the Gold import duty and introduction of Presumptive Taxation are our key recommendations to the Government”,said Mr. Pankaj Parekh, Vice Chairman of Gem & Jewellery Export Promotion Council. “With import duty on Gold having increased by 600 percent in the last one year, this will drastically affect the lower and middle class end- consumers, who can no more afford to buy gold jewellery and hence will opt for either silver or gold plated jewellery. Moreover this extreme escalation in import duty will also pose a challenge to the Jewellery industry at large who will now have to be highly competitive to create very light weight jewellery to retain their existing client base. Needless to say that this kind of spiraling duty will give rise to smuggling of Gold bullion and hinder the growth prospects of the industry”.

Budget Expectations by the Gem & Jewellery Export Council

1. While the industry would like a Presumptive Taxation regime in the long run, it would request the Finance Ministry to start by reducing the net profit to 2.5% of turnover instead of 6% for computation of Income tax, as mandated under the Benign Assessment Procedure (BAP).
2. Allow for duty free import quota for cut and polished diamonds to the tune of 15% of the previous year’s exports. This is considering the levy of duty 2% duty on Cut & Pol diamonds in January 2012 resulting in lowered trading activity in India.
3. Establishment of Special Notified Zones for import and trading of rough diamonds
   1. This is applicable to foreign diamond mining companies in such zones; whose net income is fixed and taxes are paid only on invoices raised to Indian companies
   2. This is with the objective of attracting international mining companies and trading players to sell Rough Diamonds in India
4. Indian Gem & Jewellery Industry should be declared as zero-rated indirect tax regime
   1. All duties collected in way of Service Tax, VAT or GST should be refunded by way of duty drawbacks
5. Establish a special fund by RBI to the tune of USD 3-5 billion for the refinance of borrowing given to export industries, which have a high import content of more than 70% of their exports.
6. Re-introduce a 2% interest subvention scheme on rupee export credit for Gem & Jewellery sector

Gem & Jewellery Performance for 2012:

The highlight of the performance review for 2012 indicates a positive balance of payments maintained by the Indian G & J sector due to the increased manufacturing and exports of gem and jewellery. There was an increase in the rough diamond in absolute carat volume resulting to a 3.72% growth over previous year. Total imports of raw material has gone up by 2.55%; implying a higher level of manufacturing activity in India.

Overall exports of Gems & Jewellery in 2012 dropped by 17%; which can be mainly attributed to the dip in exports of Cut & Pol diamonds by 37.3% due to decrease in trading activity in India because of the 2% import duty on Cut & Pol diamonds. On the other side, silver has emerged as the preferred metal globally.

India continues to be the highest importer for USA as compared to other markets, despite the lowered trade activity with USA. Emerging markets such as China, Middle East and Russia are slowly contributing to the exports revenue of India. The Exports to USA stand at 6.1 USD bn; higher than that from Belgium and Israel. India continues to dominate its contribution to the USA’s import basket in the Jewellery category at 23.4%. The Council is assisting the Indian G & J players in their efforts to explore China, Russia and Middle East as new avenues for exports.

Annexure 1 :Budget Expectations by the Gem & Jewellery Export Council

1. Legislation Related
   
   
   1. While the industry would like a Presumptive Taxation regime in the long run, it would request the Finance Ministry to start by reducing the net profit to 2.5% of turnover instead of 6% for computation of Income tax, as mandated under the Benign Assessment Procedure (BAP).
      
      
   2. Allow for duty free import quota for cut and polished diamonds to the tune of 15% of the previous year’s exports. This is considering the levy of duty 2% duty on Cut & Pol diamonds in January 2012 resulting in lowered trading activity in India.
      
      
   3. Establishment of Special Notified Zones for import and trading of rough diamonds
      
      
      • This is applicable to foreign diamond mining companies in such zones; whose net income is fixed and taxes are paid only on invoices raised to Indian companies
        
        
      • This is with the objective of attracting international mining companies and trading players to sell Rough Diamonds in India
        
        
   4. Indian Gem & Jewellery Industry should be declared as zero-rated indirect tax regime
      
      
      • All duties collected in way of Service Tax, VAT or GST should be refunded by way of duty drawbacks
        
        
2. Policy Related
   
   
   1. Establish a special fund by RBI to the tune of USD 3-5 billion for the refinance of borrowing given to export industries, which have a high import content of more than 70% of their exports.
      
      
   2. Re-introduce a 2% interest subvention scheme on rupee export credit for Gem & Jewellery sector
      
      
3. Procedure Related
   
   
   1. Reduce documentation requirements at Customs for exports from 23 to 12 documents
      
      
   2. Transaction costs for exports to be reduced for export/import activity
      
      
4. Additional Measures
   
   
   1. Policy for Beneficiation of Diamonds Mined in India
      
      
   2. Pursuing Free Trade Agreements with countries which are consumers of gem &Jewellery, but have prohibitive import duties on diamonds like China, Brazil and Russia. Additionally, the GOI should not restrict its efforts to markets such as Thailand, Indonesia, Malaysia that may open to trade activity but do not offer any business opportunities to India.
      
      
   3. Govt. must establish a fund in partnership with the industry for
      
      
      • Generic promotion of diamonds
        
        
      • Promotion of ‘Made in India’ Jewellery, in major consuming markets