Top Biz News

VAT cut aims to curb diamond trade

By Lillian Liu (China Daily)
Updated: 2006-07-14 08:50

About 130 million carats (26,000 kg) of diamonds are mined across the world every year. Of those, around 3 million carats make their way onto the Chinese mainland to be crafted by some 20,000 workers into dazzling symbols of enduring love.

But smuggling and illegal trade has plagued the sector for many years, prompting the Shanghai Diamond Exchange (SDE) to introduce a value-added tax (VAT) policy recently to overcome this problem.

The government-backed move is also expected to balance the tax burden and encourage diamond sellers to increase their investment.

Before the new policy, the VAT rate for rough diamonds entering the mainland through the SDE was 17 per cent.

The new regulation cuts VAT on imports of rough diamonds and polished diamonds to zero and 4 per cent, respectively.

While domestic and overseas diamond companies with units on the mainland were unable to say what the long-term effect would be, they welcomed the new policy.

The mainland is the largest diamond cutting and polishing centre after India, but in terms of revenue from the trade it still lags far behind not only India, but also Israel, South Africa and Belgium.

"The policy has been due for years and is definitely a positive one that will help our import and sales and help the business as a whole," said Dror Marom, regional manager of Dalumi Diamonds, an Israeli company with annual global sales of US$150 million.

"It's difficult to give a precise prediction because every new regulation needs time ... We expect our sales to jump 10 to 15 per cent this year, and certainly hope the tax break will give us some help," Marom said, adding that he hoped the move would curb diamond smuggling, too.