Local gem and jewellery businesses shift overseas as taxes bite

The Sri Lanka Gem and Jewellery Association (SLGJA) warned yesterday that the high taxes, including the Value-Added Tax (VAT), are pushing businesses to relocate abroad, threatening the future of the industry.

The imposition of the 18 percent VAT on the import of rough and finished gemstones– although they are primarily intended for re-export or to be value-added and sold locally to visiting foreign visitors for foreign currency– has changed the dynamics of the industry to the detriment of its sustainability in Sri Lanka, the SLGJA said in a statement yesterday.

The SLGJA had previously warned that the VAT imposition would increase the risk of relocation to emerging competitor hubs such as Dubai, India, Hong Kong and Thailand. 

These countries maintain single-digit VAT rates for their respective gem and jewellery industries.

This disparity is now on the verge of rendering Sri Lanka’s gem and jewellery industry uncompetitive, with the livelihoods of over 600,000 employees in the formal sector being in jeopardy, according to the SLGJA.

“These taxes are a deterrent for dealers, who take risks with their own money. Banks do not provide loan facilities for this trade, which further complicates the situation for such businesses,” said SLGJA President Ajward Deen.

VAT on foreign currency sales, consumed overseas, without any refund mechanism, is also discouraging sales to tourists. 

Sri Lanka has garnered a reputation for being an ‘Island of Gems’. The industry has been an integral part of Sri Lanka’s cultural heritage. 

On a global scale, the country’s reputation for producing high-quality gemstones has been well established.

“In order to maintain this reputation, it is vital that the necessary support be provided and that the policies that enhance global competitiveness of Sri Lankan gems, such as tax reforms and streamlined regulations, be put in place,” Deen said.