China’s Ministry of Finance, State Taxation Administration, and General Administration of Customs jointly announced the VAT adjustment for diamonds entering the country via the Shanghai Diamond Exchange (SDE) in a statement issued on June 12, 2006 at the Shanghai Diamond Exchange. They said that the actual VAT for polished diamond imports through the SDE will be reduced from its current 17% to 4%, 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 joint notification also ratifies the SDEs authority to charge a trading fee on transactions, according to the statement. Additional details on the implementation of the VAT will be released by the customs office prior to July 1, 2006.%%The reduction of VAT will only apply, during the first stage, when a diamond is imported via the SDE. 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 4% VAT. The customs office in the SDE will then issue an invoice of 17% for tax offsetting purpose when the goods enter the next stage of the pipeline, according to the statement.
A VAT will not be imposed on rough diamonds if imported through SDE. If the polished product of the above-mentioned imported rough is sold back into SDE after processing, VAT for the added value obtained in the processing sector is exempted together with that of the import value. These polished diamonds can then be exported overseas, and/or re-imported into the domestic market by paying 4% VAT and getting a 17% tax invoice for offsetting at the next stage. If the polished product of the above mentioned imported rough is sold directly in the domestic market after processing, then the 17% VAT will be applied, according to the SDE.%%Industry leaders and diamantaires welcomed to news of the VAT adjustment. Shmuel Schnitzer, president of the World Federation of Diamond Bourses (WFDB) told Rapaport that the reduction in the VAT to four percent on polished diamond imports is "most welcome news." With the removal of the main obstacle to Chinas diamond market, China will now find its rightful place in the global diamond industry, he said. "We will see a large increase in the volume of polished trade to China," said Schnitzer. "This is a tremendous breakthrough in the countrys diamond market in which both diamantaires as well as the authorities in China will benefit," he added.