India’s Goods & Services Tax Challenges Viability of Small Diamond Units

Manufacturing
01/08/2017 08:42

India's recently-adopted goods & services tax (GST) of 3% on polished diamonds, 5% service tax and 0.25% on imported rough diamonds is making life challenging for the country's 50,000 small and medium diamond manufacturing units in Gujarat, employing up to 200,000 workers. The Economic Times, citing Praveen Shankar Pandya, chairman of the Gem & Jewellery Export Promotion Council (GJEPC), reports that due to increased compliance requirements and uncertainty over when they will get input credit refund, the viability of many of these small units is uncertain. Many are at risk of closure, as any delay in input credit refund will put pressure on capital for day-to-day operations.

The 3% GST on polished diamonds is refundable once the product is exported (input tax credit), “But that is time consuming as it is not known when they will get the refund. Till such time there will be pressure on working capital,” said Pandya. Cut and polished diamonds were exempted from all taxes till June 30, but the “GST has increased paperwork and compliance requirements which is bothering a lot of units. The small units are staring at a huge loss in the first six months at least,” he adds. “There is uncertainty over their fate.” Damjibhai Mavani, secretary of Surat Diamond Association, said, “It will take at least a year to put things in order. This is the problem of the small units and not the larger ones. GST will bring in more transparency and make the industry tax compliant.” Whether the thousands of small units affected will survive the transition to transparency, tax compliance and the paperwork it involves is now the question for many Indian workers.

Photo: Reuters