New regulatory framework proposed for zero duty gold imports for exports

• SLGJA proposes to allow jewellery exporters to import gold at zero duty according to foreign currency invoices 
• Warns 15% duty could hamper indirect jewellery sales to tourists thereby affecting tourism earnings 
• Earnings from jewellery exports declined 51% YoY to US $11.49 million during first half of 2018

By Nishel Fernando 

Sri Lanka Gem and Jewellery Association (SLGJA) is proposing a regulatory framework to enhance accountability in order to allow importation of gold bullion at zero duty for direct and indirect Jewellery exports while warning that the current 15 percent import duty on gold imports could adversely affect earnings from the tourism industry. 

Speaking to Mirror Business SLGJA Chairman A.H.M. Imtizam said a proposal to this effect has already been submitted to the National Economic Council (NEC) headed by the President and to the Central Bank.

SLGJA is proposing to the government to allow direct and indirect jewellery exporters to import gold at zero duty according to the invoices filed by them on foreign currency accumulation from gem and jewellery exports. 

“The manufacturers will have to deposit their profits to banks with invoices. Hence, it’s accounted that they have sold this amount of gold for foreign currency. They can use a portion of it to import gold,” Imtizam said. 

He further said SLGJA is also comfortable with purchasing zero duty gold from commercial banks but added that it is up to the government to decide whether to involve the individual licence holders in the process. 

Meanwhile, Imtizam said indirect exports of jewellery, which takes place through the sale of jewellery to tourists, were estimated to be around US $200-250 million two to three years ago. 

He pointed out that these indirect exports could also come down considerably due to taxation, reducing tourism earnings.

Imtizam highlighted that Sri Lanka’s Jewellery industry has US $1-1.5 billion export potential in the short-term from direct and indirect exports, given the increasing number of tourist arrivals to the country.  He further stressed that jewellery industry can be a serious industry, if the proper infrastructure and regulatory frameworks are provided.

He lamented the ad-hoc policies pursued by the authorities to curb surging gold imports by imposing a 15 percent gold duty rather than enhancing accountability.  According to him, the surge in gold import occurred due to extension of gold import licences to several individuals beyond commercial banks. “Individual licence holders bought large quantities of gold and that’s why gold imports surged to that extent suddenly. 

There was no accountability. If the government wants accountability, they can easily monitor who has imported this gold and can demand them to submit proof to whom they have sold this gold. Instead of doing that the government came up with the 15 percent duty,” Imtizam charged. He noted SLGJA was not in favour when the government extending the license to individuals beyond commercial banks.

Meanwhile, several gold jewellery manufactures said that most of their peers have turned to gold smugglers to secure gold bullions for manufacturing, mainly for the local market. 

“Nobody imports gold officially now. As a result, gold is smuggled into the country and sold by keeping a 10 percent margin,” a jewellery manufacturer said.  Imtizam acknowledged that it is reasonable to have a duty for the local market.  However, he said that import duties should be reduced to discourage smugglers and the black market. “It’s fine to have a lower percentage, not 15 percent for the local market. If the duty stays around 5 percent, then the smuggling will not become viable for them,” he said. 

Imtizam noted that several important decisions are expected to be made at the NEC meeting with the gem and jewellery industry stakeholders, which is yet to be scheduled. 

Earnings from jewellery exports declined 51.12 percent year-on-year (YoY) to US $11.49 million during first half of the year while gem exports dipped 11.49 percent YoY to US $76.39 million.  SLGJA blamed the government taxation policies for the decline in gem and jewellery exports.