ECONOMYNEXT – Sri Lanka is changing the base for charging value added tax on rough stones at the point of import to re-start the lost trade in cut stones that had moved to Thailand, Dubai and Hong Kong, after taxes were hiked, a top official said.
After Sri Lanka started charging value added tax at 18 percent and Social Security Contribution Levy of 2.5 percent on imported rough stones the gem polishing and value addition sector was devastated, Chairman of the Sri Lanka Gem and Jewelry Authority SP Chaminda, said.
“We saw that our gem industry was slowly moving out of Sri Lanka and was shifting to other countries like Thailand, Dubai and Hong Kong as a result of the far more simplified and liberalized tax policies they followed,” Chaminda told reporters Monday.
“In the last few years with the reduction of imports people engaged in the cutting and polishing of stones and those in heat treatment industries were badly hit. There was a big industry centered around Ratnapura and Beruwala.”
Before VAT on imported stones were charged after an external default, Sri Lanka customs used to charge 200 dollars a parcel as a clearance charge regardless of weight or value.
But when VAT was charged on an assessed value, the incoming volume of imports had significantly reduced.
After discussions with the Ministry of Industries and Finance Ministry, the base for charging VAT will be charged on a deemed value based on weight.
Deemed Value
Precious stones will have a deemed value of 900 dollars a kilogram and semi-precious stones 50 dollars a kilogram.
“A kilo of precious stones will now charge 20.5 percent of 900 dollar which is about 57,200 rupees” Chaminda said.
“A semi-precious stone will be charged 10.25 dollars or around 3,174 rupees.
If small amount of stones is brought below 1 kilogram, they will be charged by the carat. Precious stone like rubies, sapphires and emeralds will be charged five dollars a carat and semi-precious stones one dollar a carat.
“So, for example a stone weighing 1 carat will be charged VAT and SSCL on its deemed value of 5 dollars which will then come to around 1 dollar,” Chaminda said.
Onm semi-precious stones 1 carat the deemed value would be 0.20 dollars which would translate to around 12 rupees once VAT and SSCL were applied.
Sri Lanka authorities were also working to develop the local gem mining industry to boost domestic production and deal with environmental impacts from abandoned mines, an official said.
The authority was also raising the quality of gem certification by raising the quality of existing labs so that they can give an internationally accepted certificate.
“It will certify whether the gem is of Sri Lankan origin or not or whether it is natural or heated,” Chaminda said.
Sri Lanka is also planning to set up a refinery to produce fine gold in Sri Lanka due to import taxes blocking gold flows.
RELATED: Sri Lanka looking to set up gold refinery amid import block
During discussion with authorities, jewelry industrialists had pointed out that gold taxes were very high.
“With import bans the importation of Gold came to a complete standstill then,” Chaminda said. “Now however a very large tax of around 45 percent is applied at the current tax rates businesses are finding it difficult to survive.”
“The 45 percent tax applied is an IMF condition as we are still a part of an IMF loan program. Therefore, there is a problem as we are unable to relax.”
Inflationism
In Sri Lanka macro-economists who cut rates based on spurious monetary doctrines escape accountability and people and economic agents forced to jump through hoops, critics have said.
The import and exchange controls are an overt sign of the central bank escaping accountability for a flawed, inflationist operating framework, critics have pointed out.
Sri Lanka started having external problems from February 1952, leading to a once promising country with a currency board, running into monetary instability after aggressive macro-economic policy made possible by a newly set up central bank, triggering repeated IMF programs.
Two of the countries to which Sri Lanka’s gem trade had shifted to Hong Kong (true currency board) and Dubai (currency board like arrangement) do not have a policy rate and the Bank of Thailand for many years has had negative domestic assets. (Colombo/Jan20/2026)