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Israel
By Avi Krawitz
There was a sense of relief around the bourse after the Israel Diamond Exchange (IDE) announced in mid-December the much-anticipated deal it signed with the Tax Authority. After ten months of negotiations — and a five-year investigation by the Tax Authority of companies operating in the bourse — the deal clears local diamantaires to concentrate on growing their businesses, stressed Yoram Dvash, IDE’s president. “Our goal is to manage our books and to pay taxes like every other business in Israel,” Dvash said. “The agreement is truly a win-win situation for Israel and the diamond sector.” Moshe Asher, director general of the Tax Authority, added the deal was a major breakthrough in creating transparent and trusted reporting in the diamond trade.
The new regime will change the tax calculation to be based on profit rather than turnover, allowing diamantaires more flexibility to deduct expenses, the IDE explained. In a period when many small- and medium-size diamond businesses are struggling to make a profit, they won’t have to pay taxes when they post a loss, as they did when the tax was based on turnover, noted an industry professional involved in the negotiations. The deal will be passed into law in the current fiscal year, meaning the new tax calculation will apply in 2018 for income incurred in 2017. Dvash stressed the agreement will put diamantaires in compliance with international financial guidelines, which raises expectations that banks will view the industry more favorably as it should reduce the risk perception they have about the industry. He expects Israeli banks will now strengthen their relationship with the trade, in contrast to the past few years when they sharply raised interest rates and closed diamantaires’ accounts. Ernie Blom, president of the World Federation of Diamond Bourses (WFDB), endorsed the deal, saying such agreements will help persuade the financial community to provide more credit to the industry.
In addition to changing the way taxes will be calculated, the deal provided a short window for diamond businesses to participate in the Tax Authority’s voluntarily disclosure program. It gives them until the end of December 2017 to amend previously filed reports to include undeclared income, and be taxed accordingly, starting 2017 with a clean slate. The program also requires diamantaires to provide an assessment of their assets, which IDE stressed takes into account the special considerations and unique valuation factors applied in the diamond industry.
As businesses rushed to prepare their books in the final two weeks of 2016, trading slowed in the bourse. The announcement of the deal came the week before Christmas at a time when orders are traditionally slow, allowing businesses an opportunity to assess how the past year had been. Israel’s polished exports fell 3 percent to $3.84 billion in the nine months to September 30, according to government data published in November. Among its major markets, exports to the U.S. were flat at $1.47 billion, while exports to Hong Kong fell 10 percent to $1.03 billion during the period. Most diamantaires were relatively satisfied with their performance. Trading was largely supported by the positive U.S. market throughout the year, but particularly as the holiday season began and confidence improved after the U.S. presidential elections, explained Avraham (Bumi) Traub, owner of ABT Diamonds. Diamantaires who spoke with Rapaport Magazine were confident that, “with a businessman in the White House,” global trading conditions will strengthen. “I believe 2017 will be more positive because we’re seeing a positive trend in the U.S. and that will influence other centers,” Traub said. “I feel the global economy is more in balance today.” While he noted that too much regulation can hurt the industry, recent moves such as India’s demonetization policy and new tax regimes in Israel and Belgium will help level the playing field. “Regulations and compliance issues have changed things and we need to get used to the new model of not dealing in cash, but it’s also slowly bringing the industry to a place where it needs to be,” Traub said. “At the end of the day, the diamond community just wants to get on with work. This will give us that opportunity.”Article from the Rapaport Magazine - January 2017. To subscribe click here.
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