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Diamond Tax Problem Gives Air to Underground Diamond Deals

2004: Diamond Tax Problem Hinders Canada’s Diamond Market

Mar. 2004

In an announcement that would’ve been deemed unbelievable but a decade ago, new research shows the United States’ neighbor to the north has overtaken diamond giant South Africa in the production of the world’s favorite gem. According to research materials supplied by Tacy, consultants to the diamond industry, Canada produced about 15 percent of the world’s diamonds in 2003--third only to Botswana and Russia.

In price per carat of diamonds produced, Canada also outranks many of the world’s traditional diamond-mining majors--now falling behind only Namibia and Angola.

This comes just a dozen years after the first diamond discoveries were made in Canada’s Northwest Territories, and with just two mines currently operating. Two additional mines are expected to open in 2005 and 2006--signaling even further growth in Canada’s diamond producing market share. According to Tacy, the first six months of 2003 saw Canada’s diamond market worth about $565 million--of which exports accounted for 81 percent.

Luxury Taxes Problematic for Retailers

As diamond production blossoms in Canada, taxes in the country are discouraging the legal trade of the resource, forcing trade underground and hurting jewelry retailers in the country.
According to a recent report by the Globe and Mail periodical, three out of every four stones in Quebec, for example, are sold under the table. While some experts dispute the figure, all agree that Canada’s luxury taxes are hindering the market.

High duties on imports is one problem, another is a 10 percent excise tax on jewelry. While the world watches the Canadian diamond market, sale of diamonds in Canada have been hurt--with Canadian stones being more affordable outside the country’s borders than within. According to the Globe and Mail, the 86-year-old, 10 percent luxury tax--one that has been lobbied against by the jewelry industry for years--forces manufacturers to up the sale price of items made in Canada. It is also paid by importers on the value of the imports.

The Canadian diamond retail market is worth about $1.3 billion a year--but opponents of the luxury tax say that the legitimate retail market could increase that number by 10 percent if the luxury tax were eliminated.
Because of the mark-up necessitated by the tax, many Canadian buyers of diamonds make purchases outside the country on the Internet.

The jewelry industry has been lobbying against the Canadian luxury tax for years, but the growth of the Canadian diamond production industry makes the effects of the tax even more profound for retailers there.


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