Gem industry struggles amidst high taxes, illegal practices
The Central Bank of Sri Lanka (CB), through its Financial Intelligence Unit (FIU), has enhanced its current efforts of discouraging money laundering and other illicit activities involving the gem and jewelry industry, which is already affected by high taxes.
The FIU carried out awareness programmes on the Anti-Money Laundering / Countering the Financing of Terrorism (AML/CFT) compliance obligations among the participants in the industry.
The CB is preparing for the 2025 international evaluation of Sri Lanka’s AML/CFT framework to maintain global reputation and secure market access. Key initiatives included training on the Financial Transactions Reporting Act (FTRA) and Customer Due Diligence (CDD) requirements for gem transactions exceeding US$15,000.
Despite these measures, the gem trade in Ratnapura and Beruwala remains largely informal, with only 12 per cent of daily transactions—valued at over Rs. 10 billion—processed through legal channels.
However informal systems like hawala are frequently used for financing gem purchases, bypassing formal banking systems and complicating the enforcement of regulation, a senior official of Sri Lanka’s National Gem and Jewellery Authority said.
Revenue from gem exports fell by 20.9 per cent year-on-year in the first eight months of 2024, dropping to $212.8 million from $268.8 million in 2023, Central Bank data shows.
Industry sources attribute this decline partly to the imposition of an 18 per cent Value Added Tax on rough and finished gemstones, which affects both re-exported gems and those sold locally to foreign tourists.
Several leading gem traders complained that such taxes risk driving traders to competitor hubs such as Dubai, India, Hong Kong, and Thailand.
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