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This Budget to be a girl's best friend
February, 13th 2007

With the Union Budget likely to abolish the import duty on cut and polished diamonds (CPDs) and gemstones, the ems & jewellery industry is in for some happy times. Another planned initiative for the industry is the introduction of the presumptive tax regime, which allows for computation of income-tax on the basis of turnover.

The proposal to cut the Customs tariff on import of CPDs and gemstones from 5% to nil follows a recommendation to this effect by the MR Sivaraman committee, set up last year to study the rationalisation of taxes and tariffs applicable to the forex-earning gems and jewellery sector.

The finance ministry is keen to put the sector which accounted for nearly 15% of the countrys total exports and 19% of the total world demand for gems and jewellery in 2006 on a growth trajectory that will see centres like Mumbai emerging as a diamond hub on the lines of cities like Antwerp and Bangkok. To that end, the ministry is said to have decided to reflect in the coming budget the recommendations of the Sivaraman committee on both the customs tariff as well as introduction of presumptive tax.

The presumptive tax regime was introduced in the last budget for the shipping sector, wherein the tax to be paid by companies in the sector would be calculated on the basis of tonnage. The proposal is now set to be replicated for the gems and jewellery sector, mainly to cut down on administrative costs and to encourage output as increased production would mean less taxes. This proposal, according to sources in the government, would be revenue-neutral.

As for the duty cut, the government is keen on seeing the emergence of centres like Mumbai as major diamond hubs, competing with other international diamond destinations like Antwerp and Bangkok. The abolition of duties on CPDs and gemstones, which accounted for 23% of total imports by the gems and jewellery sector, is expected to increase exports of studded and finished ornaments.

Duty cuts may essentially help Indian jewellers, most of whom are in the unorganised sector, cater to the growing demand of bulk buyers from the US and European Union for Indian diamond studded jewellery due to its affordability. bhaLower import rates will bring India on par with major competitors like Thailand which have zero tariffs on import of gold diamonds and gemstones. At the same time, it will create more jobs as the gems and jewellery trade is highly labour intensive, employing nearly 2 million workers.

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