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China and Diamonds: Perfect Together!
China’s long awaited announcement on a VAT adjustment for diamonds entering the country via the Shanghai Diamond Exchange (SDE) finally came in the form of a joint notification by the country’s Ministry of Finance, State Taxation Administration and General Administration of Customs of China.
In a statement issued on June 12, the Shanghai Diamond Exchange said that the actual VAT for polished diamond imports through the SDE will be reduced from its current 17 percent to four percent, effective as of July 1, 2006.
There will be no VAT imposed on rough diamonds when imported via the SDE.
As per existing regulations, the SDE is a tax-bonded area, and the customs office located inside SDE will remain the exclusive channel in China for the import and export of diamonds under general trade, according to the statement. The reduction of VAT will only apply, during the first stage, when a diamond is imported via the SDE.
VAT is a transactional tax, levied on each value-added transaction at each section of the value chain, from importation — if the commodity is imported — to wholesale and, finally, to retailing. For imported goods, VAT is first collected at the point of import by customs, based on import value. VAT-collecting procedure for polished diamonds is different from that of rough diamonds in that a polished diamond importer will pay four percent VAT. The customs office in the SDE will then issue an invoice of 17 percent for tax offsetting purpose when the goods enter the next stage of the pipeline, according to the statement.
Good first step, but we would like to see other Governments (Canada, Europe) as well as China reduct the VAT to 0% so as to stimulate and increase diamond and jewelry sales.
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