Editor’s Note
This article highlights a significant policy shift in Sri Lanka’s gem industry, where authorities are adjusting the VAT application point for imported rough stones. The move aims to revive the domestic cutting and polishing sector, which had been severely impacted by previous tax hikes, leading to a loss of trade to regional hubs.
ECONOMYNEXT – Sri Lanka is changing the base for charging value added tax on rough stones at the point of import to re-start the lost trade in cut stones that had moved to Thailand, Dubai and Hong Kong, after taxes were hiked, a top official said.
After Sri Lanka started charging value added tax at 18 percent and Social Security Contribution Levy of 2.5 percent on imported rough stones the gem polishing and value addition sector was devastated, Chairman of the Sri Lanka Gem and Jewelry Authority SP Chaminda, said.
“In the last few years with the reduction of imports people engaged in the cutting and polishing of stones and those in heat treatment industries were badly hit. There was a big industry centered around Ratnapura and Beruwala.”
Before VAT on imported stones were charged after an external default, Sri Lanka customs used to charge 200 dollars a parcel as a clearance charge regardless of weight or value.
But when VAT was charged on an assessed value, the incoming volume of imports had significantly reduced.
After discussions with the Ministry of Industries and Finance Ministry, the base for charging VAT will be charged on a deemed value based on weight.
Precious stones will have a deemed value of 900 dollars a kilogram and semi-precious stones 50 dollars a kilogram.
“A semi-precious stone will be charged 10.25 dollars or around 3,174 rupees.
If small amount of stones is brought below 1 kilogram, they will be charged by the carat. Precious stone like rubies, sapphires and emeralds will be charged five dollars a carat and semi-precious stones one dollar a carat.
On semi-precious stones 1 carat the deemed value would be 0.20 dollars which would translate to around 12 rupees once VAT and SSCL were applied.
Sri Lanka authorities were also working to develop the local gem mining industry to boost domestic production and deal with environmental impacts from abandoned mines, an official said.
The authority was also raising the quality of gem certification by raising the quality of existing labs so that they can give an internationally accepted certificate.
Sri Lanka is also planning to set up a refinery to produce fine gold in Sri Lanka due to import taxes blocking gold flows.
During discussion with authorities, jewelry industrialists had pointed out that gold taxes were very high.
“The 45 percent tax applied is an IMF condition as we are still a part of an IMF loan program. Therefore, there is a problem as we are unable to relax.”