VAT on the whole jewellery or just the value-added part

Dubai: UAE’s gold retailers are retaining hope that the VAT (value-added tax) on jewellery will be confined to portion where value has been added and not on the gold component itself. .“The Dubai Gold & Jewellery Group has made this request to the Dubai Government. If VAT is excluded from the gold component, it would have a major say in ensuring Dubai’s the most competitive gold and jewellery market in the world,” said Abdul Salam K.P., member of the board at the group. Everything you need to know about VAT in UAE .“We should shortly be getting a status on what the VAT will be for jewellery. ” .Currently, there are no import duties on bullion and loose diamond imports into Dubai, but is at 5 per cent on jewellery imports. The VAT on gold bars and coins is expected to remain at 0 per cent. .In typical gold jewellery pieces — favoured by a significant section of consumers here — the gold component averages between 80-90 per cent. These are the pieces that drive volumes across the gold trade. (Then there are the diamond studded designer pieces that cater to an altogether different clientele, and where the gold component is typically 18k and not the generic 22k.) Now, as per the Gold & Jewellery Group’s proposal, the VAT should ideally be utilised on the 10-20 per cent non-gold value addition made to the piece. That would also be a level at which consumers would not feel the impact on VAT surcharges. The other alternative would be to pay VAT on the full price of the jewellery set, but can make for a sharp difference in the showroom prices. And that’s something retailers are dreading against the backdrop of strengthening gold prices. .Gold was trading at $1,321.66 (Dh4,854) on Thursday (September 14) and the lowest since September 1’s $1,318.75. The Dubai price on a per gram basis was at just over Dh150 early Thursday. .But now that it is well past the $1,300 an ounce range, $1,400 is not that remote. For that to happen much depends on how the US economy and the dollar are faring, and the next steps from the Fed. .But UAE jewellery retailers are already seeing $1,300-plus levels playing havoc with consumer demand. Only the period around DSF 2107 in January and the period during and just before Eid managed to see that clear spike in buying. This is why much rides on what the VAT surcharge will be, and especially at a time when bullion prices are on the upside. .If one of the other Gulf markets were to allow VAT on gold jewellery just on the value-added portion, it could mean some erosion on the UAE’s price advantage. And it would also reduce the price gap between retail prices here and in India, from the current 14 per cent (which includes the 3 per cent GST or the goods and service tax India introduced from July 1. India currently has a 10 per cent customs duty on bullion and 25 per cent on jewellery imports.) “The Dubai gold trade’s indifferent performance in the last two years was because enough tourists weren’t willing to spend on jewellery,” said Chirag Siroya, Vice-Chairman of Dubai Gold & Jewellery Group. “They are turning extremely sensitive to the gold price and it will take them to absorb the price add-ons. The contribution of domestic shoppers too have been flat or seen a slight reduction — the gold trade is increasingly reliant on their coming to the shops. .“I think much will hinge on how quickly consumers here — and to an extent tourist shoppers from the Subcontinent — will absorb the post-VAT price points. That’s the key question for the jewellery trade.” .And the most pertinent would be how the VAT on jewellery will be charged — on the piece or just the value-add. .That’s the equation the gold trade will need to start computing shortly.