Dear
Sir and Madam
THE
DIAMOND COUNCIL OF
A
position paper prepared by the Diamond Council
for
the Department of National Treasury
The
Department of National Treasury has called for comments with regard to its
Diamond Export Levy Bill, 2006.
The
industry wishes to comment on the following aspects of this bill:
1. Section
5 – Import Credit
1.1 The fiscus has wisely implemented an import credit relief
measure whereby producers are entitled to receive credit with respect to
importation of any rough diamonds. Such
credits are offset against the export levy imposed.
1.2 The fiscus realizes that if an export
levy encourages local beneficiation, then a credit against import of rough
diamonds would similarly have the same effect.
1.3 Unfortunately, the fiscus does not go
far enough. The credit system should be available
to all exporters of rough diamonds
from
1.4 This relief measure should be extended
to:
a)
Persons holding diamond dealers licenses
b)
Persons holding diamond beneficiation licenses
c)
State Diamond Trader
1.5
All three categories of
license holders are intimately involved in local beneficiation.
The specific reason for granting a Rough Dealer’s
license is to facilitate the purchase of diamonds and subsequent distribution
to cutters for beneficiation. This is especially relevant for small cutters who
do not have the expertise of sourcing diamonds on their own behalf.
It goes without saying that Diamond Beneficiation
licenses are specifically granted for beneficiation.
Similarly, the SDT’s role is to supply diamonds for
beneficiation.
1.6
All persons referred to in 1.4 a),
b) & c) above will find it necessary at some stage to export certain rough
diamonds (for whatever reason) within the ambit of the Diamond Act. It can only but promote local beneficiation
if such persons are encouraged to import rough diamonds.
1.7
The availability of an import credit would be sufficient enticement for
any exporter of rough diamonds from South Africa (for whatever reason) to actively
source replacement diamonds in world markets for local beneficiation, in order
to neutralize the impact of the export levy.
1.8
In a perfect world, the import credits would equal the export debits,
the net effect of which would be that
1.9
In order to prevent abuse of
the system by license holders, the same checks and balances that apply to
producers can readily be implemented. Viz.
d)
Satisfactory audit trail approved by the Regulator
e)
Thorough valuation by the government Diamond Valuator
f)
Inspection of brokers notes, registers and invoices
g)
Audited Balance Sheets
h)
Only licensees whose records and systems are
transparent, auditable and capable of interrogation would qualify under this
section.
2. Section
6 – Ministerial Exemption in terms of the Diamonds Act
2.1
The industry supports Section
6 and acknowledges the flexibility available to the Minister of Minerals and
Energy under section 74 of the Diamonds Amendment Act.
2.2
The Minister should be
entitled to this flexibility with regards to all license holders and not be restricted to producers.
2.3
The same vigorous process
would obviously apply to any other license holder committed to beneficiation.
2.4
The fiscus should acknowledge
that there are world-class best-of-breed diamond companies operating in
3. Section
7 – Ministerial exemption at the DEEC
3.1
Similar to Section 6, this
section gives the Minister flexibility for exemption but only applies to
producers
3.2
This section should similarly
apply to all other license holders
in order to give the Minister maximum flexibility
3.3
The same rigorous processes
applied to producers should obviously be applied to all other license holders
4. Schedule
to the Diamond Export Levy Bill – Repeal of Section 64, Deferment of Export
Duty
4.1
Unfortunately this section
has of necessity been dealt with by the fiscus simply for the reason that it
falls under “deferment of export duty”
4.2
This section should never
have fallen under “export of diamonds” as it does not comply with the simple
meaning of the word “export”.
The definition
of “export” according to the Oxford English Dictionary is: “send (goods or
services) to another country for sale”.
Section
64 does not deal with goods being sent for sale. On the contrary, it deals with
circumstances under which diamonds are temporarily consigned from
These
circumstances are critical for the conduct of the diamond business in
It is
our submission that section 64 be amended as follows:
“64. Deferment of payment of export duty –
(1) If the Regulator is satisfied that any unpolished diamond is temporarily consigned from
(a)
to be exhibited or
displayed;
(b)
to obtain an expert opinion
on it;
(c)
in the case where that
diamond is of unusual size or value, in an endeavour to find a purchaser for
it; or
(d)
in circumstances where that
diamond is definitely returned
unsold to the licensee
the Regulator may defer payment of export
duty on that diamond for such period, but not exceeding six months from the
date upon which that diamond was registered for consignment in terms of this Act, as the Regulator may determine
(2) If the payment of export duty on an
unpolished diamond has been deferred under subsection (1), the registration
officer shall in respect of that diamond issue to the licensee concerned a certificate of deferment on the prescribed form.
(3) Export duty specified in a certificate
issued in terms of subsection (2) shall, subject to subsection (4), be payable
within 30 days from the date upon which the certificate lapses.
(4) No export duty shall be payable on any
unpolished diamond in respect of which the payment of export duty has been
deferred under this section if that diamond is returned to the Republic to the licensee within the period determined
by the Regulator under subsection (1).”
4.3
If the fiscus accepts our
submission that Section 64 does not deal with exports, it would follow automatically
that it does not fall within the ambit of Section 48A of the Diamonds Amendment
Bill. In other words, such goods would not need to be “offered for sale at the
DEEC”
4.4
Section 64 has always been
dealt with under robust supervision of the SA Diamond Board. Sufficient checks
and balances can readily be put in place to avoid abuse of this section.
4.5
It is recommended that the
licensee provide the Regulator with a bank guarantee to cover his obligations
under this section.
4.6
The same procedures recommended
under Section 5, 6 and 7 of the Diamond Export Levy Bill are recommended under
this section.
4.7
The onus of establishing a
transparent and verifiable audit trail would rest with the licensee concerned.
Additional Comments
Certain
constituent bodies of the Council would like to bring the fiscus’s attention to
the following:
(a)
It is unfortunate that the Diamond Export Levy Bill and the Mineral and
Petroleum Resources Royalty Bill have been published contemporaneously.
They are concerned that the combined impact of +/-
10% on diamonds which were previously exported through the system will impose
particular hardship on small producers.
(b)
They find it difficult to understand that despite the fact that they
offer their goods for local beneficiation at the DEEC such goods are subject to
5% export levy.
Conclusion
The
Diamond Council of South Africa is mindful of our government’s determination to
advance the development of a flourishing industry in the country and applaud
almost all the measures enacted to achieve that objective. We pledge our full
support and commit ourselves to working together with you in the interest of
all South Africans.
E. BLOM
(Sent electronically, therefore unsigned)
Executive Committee members:
Mr. A. Luhlabo, Mr. S. Snyman, Mr. M. Temane,
Mr. D. Woolf, Mr. E. Malakoane, Ms. S. Orbach