Tax on turnover likely for gems & jewellery sector

New Delhi, Jan 1 | Updated: Jan 2 2006, 06:30am hrs
The commerce and industry ministry has endorsed the exports-driven $17- billion diamond industrys demand for a shift from tax on income to a regime of turnover-based tax and proposed the same to the finance ministry, commerce secretary SN Menon told FE.

Turnover-based tax on gems, which addresses valuation issues better than income tax, is prevalent in many countries, including Belgium, the largest exporter of diamonds ($23 billion).

Another advantage of the proposed regime is it would encourage foreign direct investment in the domestic diamond industry. The global gems industry is witnessing a shift from Belgium and Israel. India would benefit from this trend and attract substantial FDI, Bakul Mehta, chairman, Gems and Jewellery Export Promotion Council, said. At present, the Indian industry is largely confined to processing of imported rough diamonds into cuts and polished diamonds. Domestic sales account for just 10% of the industrys turnover. Mr Mehta said India could become a trading hub in diamonds, if the levy was on turnover.

Globally, there is either a liberal tax regime (like in Dubai and China), or a turnover tax or a presumptive tax on income on the gems and jewellery industry, Mr Mehta said. Turnover tax would increase compliance and the government would, therefore, mop up more revenue, he added. Gems and jewellery exports has been growing at a compounded rate of about 20% in the last one decade.