By Kamal Bogoda
The jewelry industry in Sri Lanka is reeling under the impact of a steep Value Added Tax (VAT) of 18% imposed on gold coins and locally manufactured jewelry from Jan 1, 2024, industry sources said.
Stakeholders and businessmen in the sector have urged the government to introduce a more reasonable VAT in the upcoming budget to prevent the collapse of the industry, which supports hundreds of thousands of livelihoods.
Previously exempt from VAT, gold coins and locally made jewelry are now subject to significant tax burdens, including a 2.5% Social Security Tax. This has caused a sharp increase in gold jewelry prices—by nearly 20%—making essential cultural and traditional practices unaffordable for many Sri Lankan families.
For instance, the market price of a gold coin, which stood at approximately Rs. 200,000, has risen by Rs. 42,000 with additional taxes. A gold Panchayudha baby pendant now costs over Rs. 50,000, a price deemed unaffordable for an average family.
“The new taxes are impacting essential traditions like weddings and coming-of-age ceremonies, where jewelry is an integral part,” said a stakeholder. “Sales are declining daily, and the industry is at risk of collapse.”
Gold coin importers face an 18% VAT on top of customs duties and other taxes, significantly increasing costs. Meanwhile, manufacturers and sellers of locally made jewelry face compounding challenges. Without the ability to obtain tax invoices for gold purchases from the Central Bank or authorized importers, they cannot offset the 18% VAT on inputs against the VAT collected on sales, further squeezing profit margins.
The jewelry industry’s plight contrasts starkly with neighboring India, where VAT on gold jewelry remains a manageable 3.5%. “The government must act swiftly to reduce VAT to a reasonable level in the upcoming budget,” urged a leading jewelry businessman.
Without intervention, stakeholders warn that the continued decline in sales and profitability could devastate the industry, affecting both large-scale manufacturers and small artisans.
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