Canada's proposed diamond strategy gets lukewarm reception from industry

Canada's burgeoning diamond industry is not likely to get an extra lift from tax changes.

A spokesman for the Canadian government dumped some cold water on hopes contained in a proposed national diamond strategy prepared by the governments of the Northwest Territories and Quebec on behalf of all provinces and territories, suggesting key tax reforms are a long-shot.

The recommendations, made in late September, called for:

- Eliminating the excise tax on jewelry, which jewelers argue makes Canadian diamonds more expensive domestically than overseas.

- Making permanent a flow-through share arrangement that helps junior mining companies raise exploration money.

- Royalty and tax incentives to promote Canadian diamond manufacturing as an alternative to deals that force companies to sell a percentage of their rough diamonds to domestic manufacturers.

Bob Paget, director of special projects for Indian and Northern Affairs Canada, told the Canadian Press news agency that action on the excise tax or incentives for manufacturers is not on the government's agenda.

He said Indian Affairs has made a case for the past six years to drop the excise tax, and make the flow-through shares permanent, but Revenue Canada has refused to budge.

Although diamond miners dislike the requirement to provide rough gems to cutting factories in Yellowknife and pressed for royalty breaks in exchange for selling locally, Paget said that proposal clashes with federal policy.

He said it is not government policy to insist that companies provide diamonds for cutting and polishing inside Canada.

Spokesmen for the mining industry agreed that it made no sense to submit recommendations that were not based on federal participation.

The report has also called for the formation of a national diamond council - made up of representatives from governments, industry, aboriginals and some non-governmental organizations - to achieve common ground on the certification of Canadian diamonds and training diamond manufacturers.

Canada is currently the world's third largest diamond producer, with two mines in the Northwest Territories and a third close to starting production. Nunavut, Saskatchewan and Quebec have all have promising prospecting results.