For nearly two years, Sri Lanka’s gem and jewellery industry has been operating under a quiet but severe choke point: stones were simply not coming in — from anywhere.
According to reporting in the Financial Times of Sri Lanka, gem imports fell sharply in 2024 and 2025 following the introduction of a value-based tax system that applied an 18% VAT and a 2.5% Social Security Contribution Levy (SSCL). While the VAT and SSCL were intended to help collect more tax revenue from the incoming gems, the real-world effect was very different. The policy unintentionally made it too expensive to import gems. That, along with being too slow to process, and the cost of importing being unpredictable, imports slowed to unsustainable levels.
As the Financial Times noted, for an industry that depends on a steady flow of rough and pre-cut stones from outside the country, the result was not merely reduced exports — the result was an industry near paralysis.
When stones stop coming in, everything else stops, too
Sri Lanka’s gem trade is built on value addition. Imported stones are cut, polished, heat-treated, and re-exported. When imports slow, the entire system backs up. Workshops sit idle. Skilled cutters lose hours. Exporters struggle to meet orders.
The Financial Times reported that many importers chose not to ship stones to Sri Lanka under the value-based tax regime, citing large upfront tax bills and unpredictable valuation decisions by Customs at the border. Mixed parcels — common in the Sri Lankan gem trade — were especially problematic, since their commercial value is often difficult to establish before processing.
The result, according to trade officials quoted in the paper, was a dramatic decline in import volumes compared with 2023. Reportedly, this was not a matter of stones being diverted strategically to other centers; they simply were not entering Sri Lanka at all.
A quiet policy change — with big implications for gem imports
Under the new system, VAT and SSCL are no longer calculated on declared market value. Instead, standardized reference values are applied based on stone category and weight, and that is all. That standard value would be approximately LKR 57,195 (approximately $183 USD) per kilogram for precious stones and about LKR 3,200 (approximately $10.25) per kilogram for semi-precious material — and that’s it.
Industry officials cited by the Financial Times, view this as a fundamental correction. The fixed-rate approach eliminates valuation disputes, restores predictability, and allows importers to know their tax exposure before a shipment ever leaves its point of origin.
In practical terms, this revision lowers the barrier that had effectively shut the door on imported stones — the rough material on which Sri Lanka’s gem industry depends.
The policy designed to capture more value ended up slowing the very activity that creates it
In hindsight, the problem over the past two years was not the tax rates themselves, but where and how they were applied. By taxing imported gemstones based on declared commercial value, the system placed its greatest burden at the very start of the pipeline — before any cutting, treatment, or value addition could take place.
Sri Lanka’s gem industry is, at its core, a value-creation business. It relies on the steady import of rough and pre-cut stones to support cutting, heat treatment, jewellery manufacturing, and re-export operations. When imports became costly, unpredictable, and slow, that pipeline narrowed.
The result was not simply higher costs, but less activity. With fewer stones entering the country, workshops idled, exports weakened, and foreign-currency earnings from the gem trade declined — the opposite of what the policy was intended to achieve.
Why this matters beyond imports
The Financial Times emphasized that the damage caused by the earlier system extended well beyond Customs clearance. Reduced imports meant fewer stones available for cutting and polishing, lower re-export volumes, weakened buyer confidence, and lost foreign exchange earnings.
It was also reported that Sri Lanka began to lose ground as a regional processing hub. International buyers and dealers do not wait for policy fixes; when supply becomes unreliable, they reroute activity elsewhere. While some of that business can return, rebuilding momentum takes time.
From that perspective, the revised import tax system is about stabilizing Sri Lanka’s gem induistry and restoring normal trade flows — a necessary first step if Sri Lanka is to rebuild its position as a regional gem processing hub.
An industry-saving move — if implementation holds
It is much too early to measure the impact of this revision. Many international traders may not yet be aware that the system has changed, and import volumes will take time to recover. But the structure of the revision addresses the core failure of the previous policy: after two years of minimal inflow, it reopens the pipeline for goods entering Sri Lanka’s gem industry and, with time, should allow normal trade activity to resume.
Tap here to read the full story in the Financial Times Sri Lanka.
