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GST rate cut in diamond job work to free up Rs 1,500 cr working capital

The Goods and Services Tax (GST) rate cut from five per cent to 1.5 per cent in job work for diamondsis expected to provide much-needed impetus to the industry. Blocked working capital worth Rs 1,500 crore in almost defunct job-work diamond polishing units is expected to be released even as diamantaires are likely to issue fresh orders to these units, following GSTrelief.

A similar benefit is set to accrue in case of cut and polished semi-precious stones where the GSTrate has been pared to 0.25 per cent from three per cent.

In the diamond industry, imported or sourced rough precious stones are sent for polishing by diamantaires to either their own units or outsourced to smaller units doing job work. It was this outsourcing that had attracted a five per cent, against which the diamond industry had been making representation to the government for reduction.

"In terms of job work service, the government has reduced the rate of GSTfrom five per cent to 1.5 per cent on supply of job work services in relation to diamonds. The measures will provide impetus to the sector, help upscale manufacturing and augment exports of Gems & Jewellery from India. The Government has given a positive stimulus to the economy and the industry facing challenging times due to slump in global demand and also due to low domestic consumption," said Pramod Kumar Agrawal, Chairman, Gem and Jewellery Export Promotion Council (GJEPC).

According to Dinesh Navadia, regional chairman-Gujarat for GJEPC, blocked working capital worth Rs 1,500 crore could get released with a reduced GST rate on job work since diamantaires would now be willing to opt for more outsourcing.

So far, demonetisation, coupled with GST, has led to liquidity crisis, with a five per cent rate on job work forcing diamantaires to reduce outsourcing and go for their own polishing units, since the former attracted more tax.

"Earlier, diamantaires would outsource 60-70 per cent of their polishing requirement to job work units.

After demonetisation and GST, it has now come down to only 30 per cent. As a result, of the roughly 5,000-7,000 units in the state that used to take up job work, only 30 per cent were getting business. This is set to improve now with the GST rate reduction," said Kirti Shah, a Surat-based diamantaire.

Shah also added that diamantaires had also deferred investments on newer machinery leading to blocked working capital, which would now get released since anticipation of fresh orders will push investments.

Further, GJEPC has also welcomed the government's move to grant exemption from GST/IGST to specified nominated agencies engaged in import and supply to exporters of silver and platinum. "The Government has accepted the recommendations proposed by GJEPC and similar to gold, now silver and platinum will also get GST exemption when supplied by nominated agency for export purpose... Diamond India Limited (DIL) has been included in the list of nominated agencies eligible for IGST exemption on imports of gold, silver, platinum so as to supply at nil GST to jewellery exporters," Agrawal added.

Exports of cut and polished diamondsin financial year 2018-19 were up a marginal 0.39 per cent at $23.82 billion, from $23.72 billion in 2017-18.

Meanwhile, the industry body lauded the government's move to make most MSMEs, including those in gems & jewellery, eligible for priority sector credit benefits. "Export credit limit has been enhanced to Rs 40 crore from Rs 25 crore earlier," Agrawal added.

• GST rate on job work for diamonds has been reduced to 1.5% • It was earlier 5% • The rate cut is expected to result in the release of blocked working capital worth Rs 1,500 crore • The diamond industry had been making representations to the Centre for reduction in rates • The previous rate on job work forced diamantaires to reduce outsourcing, as they attracted a higher rate • With the GST rate reduction, outsourcing is expected to increase

Courtesy - Business Standard



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