Budget helps diamond exporters source overseas raw diamonds in India

India's gems and jewellery exporters got a boost with the Union Budget 2024-25 announcing to provide safe harbour rates for foreign mining companies selling raw diamonds in the country.

''India is a world leader in the diamond cutting and polishing industry, which employs a large number of skilled workers. To further promote the development of this sector, we would provide for safe harbour rates for foreign mining companies selling raw diamonds in the country'', Union Finance Minister Nirmala Sitharaman said in her budget speech.

Safe Harbour Rules (SHR) introduced by the Central Board of Direct Taxes (CBDT) in 2009 allows a certain category of taxpayers to follow a simple set of rules under which transfer prices are automatically accepted by the revenue authorities.

''There has been a long pending demand to allow the sale of rough diamonds in Special Notified Zones (SNZs) through the Safe Harbour Rule and to expand the ambit of entities entitled to operate in such zones'', says Vipul Shah, Chairman, Gems and Jewellery Export Promotion Council (GJEPC).

Currently, only diamond viewing sessions are held by mining companies at SNZs. The prime objective of SNZ is to have easy availability of rough diamonds by creating efficiencies in the procurement of rough diamonds by allowing overseas diamond mining companies to sell their produce directly to Indian manufacturers through such SNZs. Though sale is allowed in countries like Belgium and Dubai, there is no direct tax on the sale of displayed rough diamonds in Dubai and there is only a 0.187% turnover tax on sale in Belgium. Indian bidders cannot purchase rough diamonds from SNZs.

''The implementation of safe harbor rates for the diamond-cutting industry, for foreign mining companies selling rough diamonds in India, will stimulate growth, boost consumer spending, and increase global competitiveness'', says Amit Pratihari, MD, De Beers Forevermark.

GJEPC had suggested the Government allow operations by rough diamond broking and trading companies at the SNZs. Globally recognised diamond broking-trading houses such as Bonas and I Hennig have a presence in diamond hubs such as Dubai and Antwerp. Such trading houses are the focal point for the sale of diamonds by smaller miners which cumulatively comprise close to 35% of the global mining produce. Allowing such trading houses to operate from SNZs with similar facilitation as provided to the diamond mining companies would ensure that India has more flexible, timely and cost-efficient access to such diamonds mined by smaller miners, says Vipul Shah.