The Sri Lanka Gem and Jewellery Association (SLGJA) has voiced serious concerns that high taxes, including the Value-Added Tax (VAT), are driving businesses in the gem and jewellery industry to relocate to countries with more favorable conditions. The 18% VAT imposed on the import of rough and finished gemstones—despite their primary use for re-export or value addition for foreign currency sales to tourists—has negatively impacted the industry's sustainability in Sri Lanka. The SLGJA had previously warned that this high VAT could lead to the industry’s migration to emerging hubs like Dubai, India, Hong Kong, and Thailand, which have single-digit VAT rates, making Sri Lanka increasingly uncompetitive and putting the livelihoods of over 600,000 employees in jeopardy.

The industry relies heavily on imported precious stones, which make up 70% of Sri Lanka’s gem and jewellery exports. With 99.9% of gems either exported or sold to tourists, the VAT has significantly reduced gem imports, leading to the closure of jewellery manufacturers and lapidaries, and widespread unemployment. SLGJA President Ajward Deen highlighted that these taxes discourage dealers, who already face challenges such as the lack of bank loan facilities. Additionally, the VAT on foreign currency sales, consumed overseas without a refund mechanism, is hampering sales to tourists and diminishing competitiveness. Deen suggests that reducing the 36% tax on net profit and the 18% VAT on imports could make Sri Lankan gems and jewellery more competitive globally.

Sri Lanka, known as the "Island of Gems," has a rich history in the gem industry, which is deeply embedded in the country's cultural heritage and is a significant source of foreign exchange. To preserve this legacy and maintain Sri Lanka’s global reputation for high-quality gemstones, the SLGJA stresses the need for policy reforms, including tax reductions and streamlined regulations, to enhance the industry’s global competitiveness.