Duty drop to add glitter to jewellery firms

A proposed drop in import duty on gold, diamonds and gemstones will aid ailing enterprises

A source from the Ministry of Finance (MoF) said that the ministry was considering reducing the import tax on gold from 1 per cent to 0.5 per cent, and possible adjustment of value added tax (presently 10 per cent) on diamonds and gemstones, but the level has yet to be set.
Nguyen Van Phung, deputy head of the Tax Policy Department of the Ministry of Finance, said that “the tax adjustment will be conducted in the first quarter this year and it is one amongst 10,000 kinds of items to have duty reviewed as part of the commitments made by Vietnam to international organisations.”
Experts said that the tax reduction, if approved, would help enterprises overcome difficulties brought about by the recent increase of gold prices on the world market.
Several enterprises claimed that their trading seemed to be suspended and some are facing a halt in business activities due to customers becoming hesitant to buy gold, diamonds and gemstones at highly fluctuating prices.
The Vietnam Gold Traders Association (VGTA) has recently submitted a proposal to the prime minister calling for a tax reduction on gold, diamonds and gemstones, which is considered a fundamental measure to rescue the industry.
Dinh Nho Bang, VGTA’s general secretary, said that “the jewellery and gold market has a high potential with a turnover of VND200 trillion ($13.3 billion) obtained in 2005; however, it has been frozen since early this year.”
The proposal from the VGTA stated that “the duty reduction will restrict the smuggling of gold and help local enterprises push up their business activities to satisfy the increasing demand for gold on the domestic market.”
Bang said that the country was fully integrating into the ASEAN Free Trade Area (AFTA) and would become a member of the World Trade Organization (WTO) soon, so tax should be removed.
Presently, Vietnam is applying the duty on gold at a level of 1 per cent; whilst many countries like Japan, China, Thailand, Malaysia, Singapore, and Indonesia are applying zero per cent.
Similarly, the value added tax (VAT) on gold is 10 per cent in Vietnam which, is much higher than the zero per cent applied in Thailand, Malaysia, Indonesia, and the 5 per cent in Japan and Singapore.
The government has just sent a document to the MoF requiring the ministry to consider the issue to help enterprises and the industry.
Phung from the MoF estimated that the tax reduction won’t negatively affect revenue from the state budget because the government only collects small earnings from the duty on gold, estimated at some hundreds of billion VND.
However, he said, the ministry would have working discussions with concerned ministries and departments such as the State Bank of Vietnam, the general departments of taxation and customs.
The VGTA said that a meeting held recently on this issue has received a thumbs-up from the State Bank of Vietnam aiming at helping the industry.
However, experts still warned that the tax reduction, if approved, will be a step to help the industry in the short term. Helping enterprises increase their competitiveness will require the government to have a comprehensive long term strategy.
There are 7,000 gold and jewellery companies nationwide but the majority is small- and medium-sized firms.

No. 747/February 6-12, 2006