New tax calculation method for gem imports: A strategic boost for jewellery industry

Tuesday, 27 January 2026 01:57 - - {{hitsCtrl.values.hits}}

Sri Lanka’s globally renowned gem and jewellery industry has received a timely boost with the introduction of a revised tax calculation method for gem imports. The new framework for applying the Social Security Contribution Levy (SSCL) and Value Added Tax (VAT) is expected to ease the financial burden on importers, revive declining import volumes, and strengthen the country’s gem export performance.

The announcement was made by National Gem and Jewellery Authority (NGJA) Chairman and Chief Executive Officer, Dr. S.B. Chaminda, at a recent media briefing in Colombo. He explained that the earlier tax regime introduced from 1 January 2024, had unintentionally slowed down gem imports and negatively impacted the broader industry.

Impact of the previous tax structure

From January 2024, gem imports were subjected to 18% VAT and 2.5% SSCL, calculated on the declared value of the imported gem parcels.

While the objective was to widen the tax base and enhance revenue, the outcome proved challenging for the gem trade. According to Dr. Chaminda, gem imports declined sharply during 2024 and 2025 compared to 2023, as the higher tax burden discouraged traders from importing raw stones. This decline was not confined to import volumes alone. Instead, it triggered a cascading effect across the entire gem and jewellery value chain, with serious economic, employment, and export consequences for Sri Lanka.

Cascading impact on gem industry

n Reduced availability of raw gems for cutting and polishing

Sri Lanka’s gem industry depends heavily on the continuous inflow of raw stones—both locally mined and imported—for cutting, polishing, heat treatment, and jewellery manufacturing. When import volumes fell due to the high tax burden, lapidary centres and processing units faced shortages of raw material. This resulted in underutilisation of cutting and polishing facilities, idle machinery and workshops, reduced productivity among skilled gem cutters, and delays in fulfilling international orders. Since value addition is a core strength of Sri Lanka’s gem industry, any disruption in raw material supply directly weakens the country’s competitive advantage in global markets.

nLower re-export volumes

Sri Lanka functions not only as a gem producer but also as a regional processing and trading hub. Many imported stones are cut, polished, certified, and re-exported to markets such as the United States, Europe, the Middle East, and East Asia. With fewer raw gems entering the country, re-export volumes declined, international buyers shifted to alternative markets, long-term supply relationships were disrupted, and Sri Lanka’s presence in global gem supply chains weakened. The reduction in re-exports meant fewer high-value shipments leaving the country, directly affecting national export performance.

nLoss of foreign exchange earnings

Gem and jewellery exports are a key source of foreign currency inflows for Sri Lanka. When re-export volumes declined, so did foreign exchange earnings. This resulted in reduced export revenue, a lower contribution to the balance of payments, reduced availability of foreign currency for essential imports, and increased pressure on the exchange rate. At a time when Sri Lanka has been striving to strengthen its external sector, the slowdown in gem exports added further strain to the economy.

n Reduced employment in value-added activities

The gem industry supports thousands of livelihoods across gem cutting and polishing, jewellery manufacturing, certification and grading, trading and logistics, and retail and export operations. With fewer gems being imported and processed, many small and medium enterprises experienced declining order volumes, leading to reduced working hours, temporary layoffs, income losses for skilled workers, and slower recruitment of young trainees. As gem processing is a labour-intensive industry, any contraction has a direct and immediate impact on employment, particularly in rural and semi-urban regions.

Strategic risk to a traditional export industry

Sri Lanka has built a strong international reputation over centuries as a source of high-quality sapphires, rubies, and rare gemstones. This reputation is supported not only by natural resources, but also by skilled craftsmanship, reliable export standards, ethical sourcing, and strong global buyer confidence. When the industry slowed due to policy-related cost pressures, it posed a strategic risk. Market share could shift to competing countries, buyer confidence could weaken, Sri Lanka’s brand value in the gem trade could erode, and long-term industry sustainability could be threatened. In global markets, consistency and reliability are crucial, and even short-term disruptions can result in permanent loss of market presence.

The revised tax calculation method

Recognising the need for a more practical and industry-friendly approach, the authorities have introduced a simplified and concessionary tax system. Instead of taxing gem imports based on their declared market value, the new method assigns standardised reference values to imported gem parcels based on the type of stones.

In Sri Lankan Rupees, the tax payable is approximately Rs. 57,195 per kilogram for precious stones and Rs. 3,200 per kilogram for semi-precious stones. This represents a significant reduction compared to the earlier system, where taxes were calculated on the full declared commercial value of gem parcels.

Key advantages of the new system

The revised tax framework significantly eases the financial pressure on importers by introducing predictable and manageable tax costs. This improves cash flow stability and enables better business planning, particularly for small and medium-scale operators. Lower tax exposure reduces the incentive for under-invoicing and informal trading practices, thereby promoting greater compliance, transparency, and regulatory discipline across the sector. With taxes no longer acting as a major deterrent, gem imports are expected to recover steadily, ensuring a consistent supply of raw materials for downstream value-added activities. Improved availability of raw gems will strengthen cutting, polishing, and jewellery manufacturing operations, enhancing Sri Lanka’s export competitiveness. Importantly, the reduced tax burden lowers entry barriers for new businesses and creates opportunities for young entrepreneurs to enter gem importing, lapidary work, jewellery manufacturing, and re-export operations.

Strategic importance for Sri Lanka’s economy

The gem and jewellery sector plays a vital role in export earnings, employment generation, rural economic development, and tourism-linked retail trade. Sri Lanka is internationally recognised for its blue sapphires, cat’s eye chrysoberyl, and a wide range of precious and semi-precious stones. Maintaining competitiveness therefore requires not only product quality, but also a supportive and realistic policy environment.

Should Income Tax exemptions on gem exports be reconsidered?

Historically, income earned from gem exports in Sri Lanka was exempt from Income Tax, a policy that helped position the country as a competitive global gem trading hub. The removal of this exemption, though intended to broaden the tax base, has reduced Sri Lanka’s relative attractiveness compared to competing gem-exporting centres such as Thailand, Hong Kong, Dubai, and certain African markets. Given Sri Lanka’s urgent need for foreign exchange and economic recovery, policymakers may need to reconsider targeted tax incentives for strategic export industries such as gems and jewellery.

The international gem trade is highly mobile, with traders and processors able to relocate quickly to jurisdictions offering lower tax burdens, faster regulatory approvals, and export-friendly policies. Reintroducing Income Tax exemptions could attract international gem traders to Sri Lanka, encourage regional trading hubs to relocate operations, and increase re-export and processing activity.

Gem exports generate high-value foreign currency earnings with relatively low import dependency. Even modest export growth can significantly strengthen the balance of payments, stabilise the exchange rate, and support essential imports. In this context, tax exemptions should be viewed not as revenue losses, but as strategic investments that multiply foreign currency inflows and long-term fiscal sustainability.

Policy balance and way forward

The experience of 2024–2025 demonstrates that excessive tax pressure can be counterproductive. Lower import volumes reduce VAT collections, export earnings, employment contributions, and foreign exchange inflows. The revised tax model adopts a balanced approach that ensures reasonable revenue for the Treasury while supporting industry sustainability and long-term growth.

To maximise the benefits of the new regime, policymakers and industry stakeholders should streamline Customs procedures, enhance gem certification and valuation standards, expand lapidary training programmes, promote Sri Lanka’s gem brand internationally, and develop digital gem trading platforms.

Conclusion

The revised SSCL and VAT calculation method marks a positive turning point for Sri Lanka’s gem and jewellery industry. By replacing a value-based tax system with a fixed-rate model, the Government has addressed industry concerns, reduced operational costs, and reopened growth opportunities for importers and exporters alike. Reconsidering targeted Income Tax exemptions on gem export income could further transform Sri Lanka into a global business hub for gemstones, boosting foreign exchange inflows, creating employment, and strengthening economic resilience. With renewed investor confidence and a supportive fiscal framework, Sri Lanka’s gem sector is well positioned to reclaim its place on the world stage.

(The author is a Chartered Accountant)

New tax calculation method for gem imports: A strategic boost for jewellery industry

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