The new policy will take effect on January 1, 2002, and the country's diamond imports and exports will be required to go through the customary declaration formalities of customs located inside the SDE.

With over 60 members, SDE is a State-level diamond centre opened in the city last October to regulate the country's diamond market.

Currently, besides the 17 per cent value-added tax and 10 per cent consumption tax, the tariff for rough and polished diamonds is 3 per cent and 9 per cent respectively.

After the adjustment, the consumption tax, which was formerly collected at the import and processing stages, will be postponed until the retailing stage. The consumption tax will be collected at a reduced rate of 5 per cent.

Meanwhile, compared with the currently refunded rate of 13 per cent, the tax collected at the processing stage will be fully refunded when diamonds are exported.

"We hope the new taxation policy falling in line with international practice can help prosper the market and fuel the business," Fang said.

Yet, after the adjustment was released last month, SDE reported that some jewellery companies expressed doubts about the new policy.

"They just worry about a rise of the diamond retail price, because the high taxation resulted in rampant trafficking, and the lift of tariffs means nothing to traffickers," Fang said.

It is estimated that a large portion of diamonds comes to the market through trafficking, which greatly affects the business.

Fang did not deny the possibility of a hike in the retail price of diamonds next year, as the current price does not conform with the international price, because of the trafficking.

"The new policy may affect the retailers' sales, but it will help curb trafficking and benefit them in the long term," he added.

The new practice is expected to act as an impetus for the further overall development of the diamond business, and not merely for the temporary prosperity of the retail market.

China has 15,000 diamond processing employees, ranking second to India.

(China Daily December 7, 2001)