A Tale of Four Tax Regimes: Antwerp, Israel, Dubai and India

Finance and Trade
14/12/2017 10:09

The tax regimes in the four major diamond midstream trading centers - Antwerp, India, Dubai and Israel - have been the topic of great discussion and significant change in recent years. The beginning of this year saw the tax policies in both Belgium (Antwerp) and Israel (Tel Aviv) change. These countries levied a minimum tax on diamond companies, which was levied as a percentage of the turnover. While this was termed as a “turnover-based tax”, it was never truly a turnover-based tax. In a way, a certain amount of tax revenue would flow in for tax authorities while allowing the industry to reduce disputes regarding stock valuation and transfer pricing.

India's trade body, the GJEPC, has been lobbying for a turnover tax, but the government has concerns, while Dubai is currently staring down the implementation of VAT in the UAE, which could pose a serious challenge to its diamond industry. Pranay Narvekar, a leading expert on demand and supply, strategic, financial, and structural problems of the diamond industry, CEO of the Gem & Jewellery KYC Information Centre and partner at Pharos Beam Consulting LLP, attempts to sort it all out.

"Currently, on the direct tax front, I believe that Belgium has created a more conducive environment for diamond companies, bringing certainty in the taxation and reducing taxation conflicts. For Israel, the industry might find that while taxes might be lower, in the long run, the cost of doing business might increase through increased scrutiny of transfer prices and operations. When looking at indirect taxes, India is just starting to address exporters’ GST refund issues. However, the lack of large-scale polishing facilities outside India will mean that diamond polishing will not be affected, although it might be subdued.

For Dubai, the diamond industry will be severely affected, unless it gets an exemption from VAT. Dubai is purely a trading centre with little manufacturing. Indirect taxes lock up funds and slow down trading. As Dubai goes about setting the VAT processes, the need for blocking funds could simply overwhelm the benefit of zero income taxes. Ultimately, the actions of diamond companies will boil down to costs. Most diamantaires consider direct taxes to be simply a cost of doing business and the impact of indirect taxes will also be similarly factored in. Other factors mentioned affect the ease of doing business, whose cost can also be worked in. The changes in tax essentially change this cost equation, which will ultimately determine the relative share of business done at the centres. For that we will have to simply wait and watch."